November 19 10 am easter

This morning Stats Canada reports that restaurant sales are still rising in 2019 versus 2018. Given new restaurants opening up, and changing tastes some restaurants are certainly facing lower sales but the industry overall is doing okay.

Sales of the food services and drinking places subsector increase in the third quarter

The figures in this section are based on unadjusted (that is, not seasonally adjusted) estimates.

Unadjusted sales in the food services and drinking places subsector were up 2.5% in the third quarter of 2019 compared with the same quarter of 2018. Sales increased at full-service restaurants (+2.9%), limited service restaurants (+2.4%) and special food services (+2.8%); sales at drinking places fell by 2.6%. Sales increased in nine provinces, with the largest gains in dollar terms being in Ontario (+2.6%), Quebec (+2.8%), British Columbia (+1.9%) and Alberta (+2.4%). Sales declined slightly in Saskatchewan (-0.2%).

Prices for food purchased from restaurants were up 2.7% in the third quarter of 2019 compared with the third quarter of 2018 and prices for alcoholic beverages served in licensed establishments were up 1.3% in the same period. Similarly, prices for food purchased from restaurants were up 2.7% in September 2019 compared with September 2018, whereas prices for alcoholic beverages served in licensed establishments were up 1.0%.”


Statistics Canada also reports weaker manufacturing sales:

“Manufacturing sales declined 1.3% to $172.0 billion in the third quarter. In volume terms, manufacturing sales fell 1.0% in the third quarter, mostly due to lower volumes sold in the petroleum and coal product (-2.4%), food (-1.5%) and chemical (-1.9%) industries.”


Markets are little changed this morning.

CRH Medical has announced it exercised its option to acquire 51% of a practice it has helped develop. This is another in a string of small acquisitions and suggests that CRH’s growth strategy remains on track. 

P.S. Shortly after posting this I added a little to my CRH position.



November 18, 2019

On Monday, markets were about flat.

The S&P 500 was up just 0.05%. The TSX was about unchanged.

CRH Medical was down 1.7%.

Couche-Tard was up 1.2%.

TFI International was up 1.3%

constellation software updated november 18, 2019

Constellation Software is updated and rated Weak Buy / Hold at $1342. It reports in U.S. dollars and so our report is in U.S. dollars. It has been and is a fantastic company. Most of the time it looks expensive but it has been a mistake to sell this one. I’d like to see a pull-back which would likely be a better buying opportunity. 

The CEO Mark Leonard is (by far) the closest I have ever seen to a sort of “next Buffett” (Prem Watsa who is often mentioned in that regard is not even remotely close). It might be worth paying up to ride Mark’s coat tails. But the stock does seem expensive… so don’t back up the truck.


November 15, 2019

On Friday markets set new record highs.

The S&P 500 was up 0.8% and Toronto was up 0.3%.

AutoCanada was up another 7.4% to $12.73. It’s low was $7.33. Things had been looking scary until the latest earnings finally showed decent signs of a turn around. I would not get too excited to buy after this recovery. It still needs to show improved performance in the next few quarters. Sometimes the best buying opportunities  are when things look the scariest and that may have been the case here.

Boston Pizza recovered 1.8% to $14.66. Perhaps it has bounced off the bottom and may not go lower unless they actually do end up cutting the distribution.

CRH Medical was down 3.1%.

There is news that CN Rail may layoff 1600 people in Canada and the U.S. This relates to the slower traffic I have been mentioning. And they have a history of reducing costs to keep profits growing. 



Melcor Developments updated November 14

Melcor Developments is updated and rated (higher) Buy at $12.04 (Wednesday’s closing price). This has been a frustrating stock that has seemed significantly under-valued for some time. But it just seems to get cheaper. It suffered from a total lack of interest by analysts which results in extremely little trading volume. It basically never issues more shares and seldom issues any convertible debt or other securities that investment banks can profit from. That is part of the reason for the lack of interest.

Other reasons are its inherently cyclical nature. Investors are used to stocks that are valued for predictable earnings not for their assets. 

I expect at least one more quarter of reduced earnings. 2020 may be flat or somewhat higher than the weak numbers of 2019. It continues to be cashflow positive even in the face of weak building lot sales. It’s investment properties provide stable cash flows. It’s U.S. building lot sales are also a plus and are ramping up.

Unless Alberta is going to go into a permanent decline or stagnation, this company should ultimately return to higher profit. 

The stock is far under-valued based on assets. But it does seem that it is in a relatively low ROE business and that is a negative.

There is nothing on the immediate horizon to boost the share price and so continued patience will be required. 

It does pay a 4% cash dividend yield.

November 14, 2019

On Thursday, the S&P 500 and Toronto were each up 0.1%.

AutoCanada was up another 9.8% today. As I mentioned, it seems the analysts have let it out of the penalty box after its decent Q3 report. 

There were no other moves of particular note for the stocks on our list.


November 13, 2019

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

Apparently hopes for progress in the trade war with China are fading. FeddEx, probably as a result, was down 3.1%. 

CRH Medical was down 4.5% despite no news from the company.

Stantec was down 2.85% giving back a bit of the recent gains. 

Home Capital surged 14% to $33.15 after reporting a strong quarter and a plan to buy back shares. This one is not on our list but I mentioned it quite a bit back in 2017 when it had a near-death experience before being rescued by Warren Buffett. 

Rail car loading reports continue the recent trend. Weak for Canada and really quite weak for the U.S.A.

November 12, 2019

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

Stantec was up another 2.3%. Recall it was let out of the dog house after reporting good Q3 numbers. 

Toll Brothers slipped 1.6% adn Limamar was down 1.8%.

Boston Pizza down to $14.40 I might buy back some of what I sold recently at over $17.

A bit of a slow news day overall. 

November 11, 2019

On Monday, the S&P 500 was down 0.2% and Toronto was about unchanged.

AutoCanada was up another 4.2% and was about the only noticeable move in the stocks on our list.

I’m somewhat tempted to buy back some Boston Pizza at $14.62. If it turns out that they never have to cut the distribution (same store sales would have to grow) then it should be quite a good investment at this price. But if they do cut, then the stock will move lower at least temporarily. I don’t seem much reason for it to move higher before it reports again in February and then at that time will only go higher if the news is good. 

November 11, 2019 11:20am eastern time

Markets in both Canada and the U.S. are open despite the holiday. Markets are down a little right now but nothing unusual to report.

Friday was another mostly positive day for our stocks. That was despite Trump throwing some cold water on the China trade deal hopes. AutoCanada had a good increase. It’s up a little more now. I think the Q3 results were a sort of all-clear signal and I am tempted to buy back some of what I sold some months ago. The new management is far better than who they replaced. But this is still a speculative stock. Update: I did add somewhat  to my position. 

Canada jobs data came out and was considered weak with a loss of 1800 jobs. A few news sources correctly pointed out that the survey is just an estimate and subject to quite a lot of error. You can’t go by any one month’s results. Still, there are other signs that the economy is slowing somewhat (rail car loadings for example).

CMHC reported weak housing starts for October. But actually, in the details, single family starts were up 3% year over year nationally. Weak in Ontario, Quebec and B.C. But Alberta was up 11% year over year. Alberta is up compared to weak numbers in 2018 but this is still progress. Edmonton was up 24% while Calgary was up only 3%. This is consistent with Melcor’s Q3 results where the vast majority of lots they sold in Canada were in the Edmonton region. The October figures are positive for Melcor but they will still be selling fewer lots for some time due to lower demand and they are developing fewer lots given the weak demand.

November 7, 2019

Thursday was a big day for earnings reports and a strong day in the markets.

The S&P 500 was up 0.3% and Toronto was up 0.4%.

Stantec was up almost 16% after reporting Q3. It my well rise more as it has likely earned its way out of the penalty box. With “weak comparables” it should be able to report good gains for the next several quarters. Hopefully it is back mostly on to track of the kind of performance it used to post prior to its problems with the now divested construction services business it had purchased (as part of a larger transaction) a few years ago.

Canadian Tire was up 4.5% after posting a good earnings report and raising its dividend.

Linamar was up 5.2% to $45.83 in reaction to its earnings report. This stock has been highly volatile with the trade wars. I suppose it could slump back towards $35 again if the trade deals sour but overall it still looks cheap. I am planning to hold onto my position and not trim at this point.

Energy stocks were mostly up.

Boston Pizza Royalty units were down 10.7% to $14.83 after reporting that same-store franchise-eligible sales were down 4% in Q3 and that the trailing year payout ratio is 104%. Given the comments from the owner of Jack Astor a couple weeks ago, this decline was not a big surprise at all. But they have not yet cut the distribution which is $1.38 per year for a yield now of 9.3%. I was able to find out that the Trustees knew the results of this quarter sufficiently in advance that they could have cut the distribution today if they wanted to. It appears that they are willing to hang on in the hopes that same-store-sales will rise. Remember that the Royalty entity itself is a non-operating entity that basically just collects the franchise fee and pays out interest and a very few minor expenses (it has no staff) and pays out the distribution.  Management at the operating company (BP International) it seems is telling the Royalty Trustees that things can improve going forward. Time will tell. Unless things improve within at most about six months then I would expect a distribution cut of perhaps 10 to 15% (about 5% would be the minimum cut). That could happen any time although it appears they would now not review again until February when they have Q4 results. At around $15 BP is probably a good investment even if they do eventually do a cut. But the price would drop on the announcement of any cut.

All in all, it was quite a good day for our stock picks with the exception of BP, and I had warned on that one.

And, after the close CRH MEdical reported what appeared to be at least okay results.

AutoCanada reported with big improvements in sales and with profit on the Canadian operations but still a loss overall due to the U.S. operations.  But also positive cash flows. I think these results should be viewed quite positively and I would think the stock will be up on Friday. New management is still dealing with the incredibly stupid U.S. purchase made by the former CEO, Steven Landry. I want to remember his name in case he ever shows up in charge of another company. In which case, run!


Amazon updated – November 7, 2019

Our report for Amazon is updated and rated Speculative (lower) Buy at $1800. Historically, Amazon traded at extremely high multiples of earnings. In the past two years or so the P/E has come down but is still very high. It’s quite possible that GAAP earnings understate its “true” economic earnings but, if so, I can’t say by how much. I added Amazon to the site a few years ago because I wanted to try to understand its valuation. It’s always had huge sales growth and is a juggernaut in the economy. Despite the high P/E it seems reasonable to have at least a small exposure to it. And note that there were opportunities to buy after big dips in the past year. Perhaps there will be future dips as well. 

Boston Pizza Royalties Earnings – November 7 – before the open

BP Royalties units earnings are out. The results are poor with a decrease in same-store franchise-fee-eligible sales of 3.6%. It could be worse but this is quite weak. No cut to the distribution but the payout ratio on a trailing year basis now at 104%. Trustees may not yet have had time to consider a cut. Could come next month.

P.S. BP down almost 10% to $14.99 as at 11:00 am eastern. Conference call is upcoming. Could go lower and likely will if/when distribution is reduced somewhat (possible in coming months). But not sure I would sell at this point. As indicated in recent weeks I sold most of my BP. It will still have a high yield even after a cut. If I had to bet though, I would say we will see lower before we would ever see much higher. 

November 6, 2019

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

lululemon rebounded 3.3% recovering a recent decline.

WSP Global was up 1.5%. Earlier in the day it had been down in reaction to its earnings release but presumably the conference call resulted in the mood turning positive.

Canadian Western bank was up 3.3% to $34.74. It was around $29 in August.

Couche-Tard was up 2.9%.

Linamar was down 2.35%. But it then released earnings after the close which I believe beat expectations modestly. As expected, earnings were down versus last year. It’s Transportation (auto parts) segment was actually had 15% higher operating earnings and slightly higher revenues. Its Industrial segment was quite weak. I don’t know how the market will react. That may depend largely on what the company says about the outlook. Linamar continues to be heavily affected by the trade wars.

Stantec reported after the close and beat expectations somewhat. This stock has been “in the penalty box” for quite some time due to past mistakes. This latest report may be taken as evidence that it is finally back on the right road. I would think that the stock should react positively to this report.

Melcor Developments reported after the close. Their adjusted measure is funds flow from operations which were down 17% to 32 cents per share. But that still well exceeds the 12 cent dividend. Residential lot sales were low as expected at 115 lots in Alberta versus 335 last year.  94 out of the 115 lots were sold in the Edmonton region and just 6 in Calgary. Lot prices were higher on average than in the prior year. Melcor also sold 24 lots in the U.S. at an average price of  $121,000 Canadian.  Melcor bought additional raw land in Q3 which is a sign of confidence in the future. Book value per share increased slightly to $32.20. Meanwhile the stock closed today at $12.06.  It seems likely that Q4 will be quite a bit weaker than Q4 last year. But Melcor appears to be confident inits future. The balance sheet remains strong.

It’s Wednesday, which means that the latest rail car loading reports are out. The latest week was another weak one in the U.S. with car loadings below that of the previous three years for the same week. In Canada it was also a weak week with loadings below 2018 and 2017 but remaining nicely above 2016. The last three weeks have been the weakest all year in the U.S. relative to prior years. That cannot bode well for GDP growth in Q4 for the U.S. Car loads are running about 10% below 2018. That’s not at all catastrophic but is surely a sign of weakness. But coal was the weakest area and that may simply refect a switch from coal to natural gas and wind/solar in electric generation. Intermodal which is consumer goods are running well below 2018.


November 5, 2019

Markets were “mixed” on Tuesday with the S&P 500 down 0.1% and Toronto up 0.1%

Constellation Software was down 3.3%. This has been a fantastic company in the long term. I will update the report soon.

WSP Global reported after the close. The results are a bit confusing due to accounting changes. But Revenue was up 15%. It appears that adjusted net earnings were about flat using the same accounting for both periods. One headline says the company missed expectations. We shall see how the market reacts. 

The five year Canada bond yield has recovered from a very recent dip down to 1.25% and now sits at 1.60%. That is providing some support for rate reset preferred shares. 


November 4, 2019

Monday was another positive day in the markets due to optimism that the U.S. and China will sign some sort of partial trade deal.

The S&P 500 was up 0.4% and Toronto was up 0.5%.

FedEx was up 5.3%.

TFI International was up 2.4%.

Linamar was up 2.3% to $44.63 which is a good recovery from a low of under $37 about one month ago. The company has already signaled that Q3 will show a decline in earnings and the market could send the stock lower when Q3 earnings are released. Their comments on the outlook will be important as will continued progress on trade talks / agreements.

Toll Brothers was down 2.2%.



November 3, 2019

Markets were up sharply on Friday as the U.S. jobs report came in  strong. The S&P 500 was up 1.0% and Toronto was up 0.7%.

Notable gains included FedEx and Toll Brothers each up 2.5%.

Apple was up 2.8%.

SNC Lavalin (not on our list but one I follow) was up another 4.6%. Its future depends to a good extent on how aggressively it is going to be chased through the courts by the Canadian government and also by sort of ambulance-chasing lawyers who will sue on behalf of shareholders who lost money on the stock . That’s a despicable process because it ultimately results in long-time shareholders (who also suffered the declines) suffering as the company is forced top pay money to a smaller group of usually transient shareholders and to the ambulance-chasing lawyers. Companies do not truly commit crimes, people do. I would rather see any guilty executives and board members chased through the courts instead.

Aecon Group was up 4%.

Stantec will report earnings Wednesday afternoon. I am hoping for significantly better results there. They divested their problematic construction services division late last year. The market was quite disappointed last quarter that Stantec was unable reduce certain costs and post better profits. Stantec has been quite deservedly “in the penalty box”. Management needs to prove they are capable of showing much better results.

Melcor Developments will report earnings on Wednesday afternoon as well. Given the good results from the Melcor REIT, (see post below) I am more confident that Melcor will report positive earnings. But it will almost certainly be a decrease in earnings and funds from operation given that Q3 2018 was a relatively strong quarter. Book value per share which is over $31 will likely be little changed and remains far higher than the market price. Based on the REIT report I am not expecting any material declines in market value on its investment rental buildings. It is always possible that they will need to write-down the value of some land holdings but there has been no indication of that  happening. What may be most important is their outlook for future lot sales in Alberta as well as in the U.S. They curtailed their Alberta land development activities this year and so that likely guarantees lower lot sales in Alberta even if the demand were present ( and demand was likely weak). The stock looks attractive on a book value basis but it appears that it is in a low return business. 



Melcor REIT updated November 2, 2019

Our report on the Melcor REIT is updated and rated (higher) Buy at $7.99. The REIT just released Q3 earnings which had a number of positives. After about six quarters of declining adjusted earnings per share, they reported an 8% increase in Q3. This was partly due to timing issues but was also due to ongoing factors. They reported “new stability and positive momentum with leasing activity”. They have made some acquisitions and another one is pending. In my last update I was worried they might have to cut the distribution. That is always possible but now does not look likely. I have an exposure to this REIT. I am definitely thinking of adding to that. My only hesitation is that I already have such a very large exposure to Melcor Developments and also to real estate in general (Including Toll Brothers). Also, I have built up some cash now and would like to maintain a reasonable level of cash to take advantage of any bigger bargains that come along.



October 31. 2019

Stocks were mostly down on Thursday as the S&P 500 fell 0.3% and Toronto was down 0.1%.

But SNC Lavalin was up 20% after announcing Q3 results that included the big gain on the sale of most of its stake in highway 407 and that included positive progress in other areas of its business.

Apple Inc. was up 2/3%

After the close the Melcor REIT reported Q3 results which were quite good. This included an 8% gain in adjusted funds from operations per unit (although flat year to date). They also indicated they are seeing “new stability and positive momentum with leasing activity”. I have been worried about the impact of their loss of RBC as a tenant in the Royal Bank Building in Edmonton. This loss was effective with the start of Q4. They clarified that this loss was 1.6% of their total leaseable area. So it is a big loss but not over whelming. And I suspect the percentage would be closer to 1% in terms of revenue. There was no indication that they are taking a mark-to-market loss on the building due to the high vacancy. Possibly that projected vacancy was already reflected in their balance sheet value for that building – or perhaps a loss will show up in Q4.

Overall, this was definitely a positive report from the REIT. This would also mean that the parent company,  Melcor Developments itself will not be reporting any material mark-to-market loss on the Royal Bank building in its Q3 report next week. Melcor will however likely show lower profit year over year due to slow residential lot sales. What may be more important is what they say about the outlook.

Constellation Software reported Q3 results which were once again quite strong.

Toll Brothers announced it has secured increased borrowing capacity. Toll Brothers’ outlook should be benefiting from lower interest  / lower mortgage rates. On the other hand the fires in California could be significantly slowing their sales in that State.

Today marks the end of fiscal 2019 for Canada’s banks as well as for Toll Brothers. 

Virus malware bad attachment alert October 31, 2019

Warning – do not open any attachment in an email that you receive from me. I never send attachments to my investorsfriend lists. I use links.

On Tuesday, my email system was attacked when I opened a so-called secure PDF file that appeared to be from someone I knew and trusted. The hacker then sent similar attachments to an unknown number of my email contacts. If you received it, do not open.

October 30, 2019

On Wednesday, the Bank of Canada held firm on interest rates at 1.75%  while the FED lowered by 0.25% to 1.50%. But the Canada statement was interpreted as signalling a possible cut ahead and the FED statement was interpreted as signalling this may be it for rate cuts.

The Canadian dollar fell on the news. Apparently yesterday was the day to buy U.S. dollars, or at least ws better than today. I was wanting to transfer some Canadian dollars to U.S. but will wait ans see if our dollar rebounds from today’s little decline. 

The S&P 500 ended the day up 0.3% and Toronto was up 0.5%.

Constellation Software was up 2.1%. 

After the close, Starbucks reported a strong quarter with U.S. same-store sales up 6%. This is a stock worth considering.

Apple Inc. also reported after the close and while the revenue growth was modest, the results were apparently better than expected as the stock is up modestly in after hours trading.

The latest rail car loading reports are out. In the U.S. they remain weak, running below the levels of 2018, 2017 and 2016 but there was an improvement versus last week. In Canada there was a sharper improvement and rail car loadings were equal to the 2017 level and well above 2016 but below last year’s level. 

The yield on the 5 year Canada bond fell sharply down 16 basis points today. But, strangely, the rate reset preferred shares mostly did not decline on that news and instead some were up.


Heineken updated October 30, 2019

Our report on Heineken is updated and rated Weak Buy / Hold at 90.90 euros. Or you can buy in the U.S. as HEINY for U.S.$ 50.55 (these were yesterday’s closing prices). Two HEINY are equivalent to one common share. The stock is not cheap. It may be of interest for diversification. I had added it to the site back in 2016 after touring “The Heineken Experience” in Amsterdam. It should continue to do well long term but does look somewhat expensive at this time.   

October 29, 2019

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

Apple was down 2.3%. Shopify was down 3.2% after reporting a loss but sharply higher revenue. 

Tomorrow, the FED is expected to cut interest rates by 0.25 while the Bank of Canada is expected to hold interest rates steady.

If so, that supports strength in the Canadian dollar. I am thinking of buying some DLR (effectively buying U.S. dollars) on Toronto to transfer that to the U.S. dollar side of my account and to then make some purchases of U.S. equities. 

October 28, 2019

On Monday, the S&P 500 was up 0.6% while Toronto was down 0.1%.

Restaurant Brands was down 3.7% after “meeting earnings expectations” in Q3 but reporting a reduction in same-store sales at Tim Hortons. 

Toll Brothers was down 2.6%

Rate reset preferred shares rose as the 5 year Canada bond yield is back up to 1.65% which is a good recovery from lows around 1.15% at the start of September.

October 27, 2019

On Friday, the S&P 500 was up 0.4% and Toronto was up 0.2%.

Linamar was up 1.6%. Fed Ex was up 2.6%.

It will be interesting to see if the market reacts positively to the death of the ISIS leader. Definitely a big win for Trump. He’s had a nice weekend.

The market is expecting another FED rate cut this week. 

Numerous earnings reports will be rolling in. 

BHP Group updated October 27, 2019

Our report for BHP Group (formerly BHP Billiton) is updated and rated Speculative Buy for the BBL ADR (American Depository Receipt) that trades in New York at $42.49. It also trades as the BHP ADR at $49.22. The two types of shares are said to be economically equivalent and yet a big discount has applied to BBL for some years. We would favor the BBL. Adding to the confusion these ADRs each represent two actual shares.

BHP is a massive mining company headquartered in Australia but with operations around the world. Its main product is iron ore but it also has large operations mining copper and coal ans also has off-shore petroleum wells. In Canada it is is developing the Jansen Lake Potash mine which is not yet operational. 

Its earnings are inherently volatile and hard to predict. But it does have a strong balance sheet. It also pays a high dividend currently with a trailing yield of 6.3% on the BBL shares. But they vary the dividend up and down somewhat with earnings. For that reason and because it is not eligible for the Canadian dividend tax credit, it should not be bought primarily for the dividend. The stock price is almost exactly unchanged since our update one year ago but it did pay regular dividends amounting to 6.3% of the BBL price and a further 4.8% as a special dividend. As reported in comments earlier this year, I sold out my position in this company at a gain earlier this year.

This stock is probably best suited to those who particularly seek an exposure to a large mining company.  For further comments see our comment of October 16 last year. The stock is reasonably priced at this time but it appears to be facing lower earnings this fiscal year which could certainly send the price lower.

October 24, 2019

In Thursday’s action, the S&P 500 and Toronto were each up 0.2%.

Shopify was up 8.8% continuing its recent gyrations. 

Visa was up 2.8% and then released yet another strong earnings report after the close.

Linamar was down 2.5%.

After the close, TFI International released earnings that on an adjusted per share basis were unchanged versus last year at $1.04. Apparently analysts expected $1.05. If this stock drops on the news I may look to add modestly to my position. It’s a good long term performer. However, the lack of growth this quarter is another indicator that the economy is softening somewhat.


October 23, 2019

On Wednesday, the S&P 500 was up 0.3% while Toronto was down by 0.3%.

Linamar was up 1.5% and has had a good bounce back from recent lows. 

CRH Medical announced that it has arranged with its lenders to increase its credit lines to $200 million from $100million in a new three year arrangement. They will also reduce their borrowing costs by up 10 1.0% and will borrow at LIBOR (the London Inter Bank Offered Rate) plus 1.25 % to 1.75%. That appears to be a relatively low cost. This would appear to indicate that the lenders have confidence in CRH and that the company is generating good cashflows. They have been buying back shares regularly which suggests confidence on the part of management. On this news, I was tempted to increase my position but upon review my position is already large for such a small cap company. And I do worry that this company could be vulnerable to technological changes that could decrease the demand for colonoscopies. (Their business is almost entirely in providing anesthesia services for colonoscopy procedures). On the balance though, I think the company should continue to do well. 

Statistics Canada reported that wholesale sales fell in August after rising in July.

I have been watching rail car loading reports more frequently. The latest weekly report was out today.

U.S. rail car loadings have continued to weaken. In the latest week they were noticeably below the levels for the same week in any of the past three years. Relatively to prior years this latest week is the weakest all year and the second weakest was the prior week. To see what I mean look at the graph. If you click through to the graph, notice the “radio” buttons to the right that allow you to choose Canada, the U.S. or Mexico and to look at individual freight categories. Canadian car loads were also weak. This latest week was the worst performance relative to the previous years on the graph. But the Canadian car loads do remain above the 2016 levels whereas in the U.,S. they are now below the 2016 level. At least visually, the Canadian situation does not look as bad as the U.S. But then again the percentage drop in the two countries is not clear from the graphs. In any case the lower volumes are indicative of a weakening economy in both countries.

October 22, 2019

Well, Albertans stayed up late only to find that the election did no go their way.

But the stock market opened as usual and life goes on. The S&P 500 finished the day down 0.4% and Toronto was down 0.2%.

Shopify was down 6.2%. It will take a very good Q3 growth report if this stock is to regain its high this year.

SNC Lavalin got a boost from the election and rose 14%.

Visa Inc. was down 3.2%.

Toll Brothers was up 2.1%.

CN Rail reported earnings after the close. Revenues were up only 4% but adjusted earnings were share were up 11% which is good. However, they reduced guidance for Q4 and were down slightly in U.S. after-hours trading.

Statistics Canada reported sales at food services and drinking places for August. The gains versus August of 2018 were good at 2.8% for Canada and 3.2% for Ontario. For many months now these reports have looked favorable for the likes of Boston Pizza and yet BP and some other restaurant chains have struggled to maintain let alone increase same-store sales. So, I am not sure that this will translate into an actual gain for BP in same store sales for Q3 but this is a positive report. There was no evidence in this report of the slump reported by the owner of Jack Astor’s last week. Perhaps the evidence will show up in the September report. My best guess is that BP will be able to maintain its distribution. But the possibility of a cut certainly remains.

I drove through Melcor’s Jensen Lake subdivision and shopping area today. This is an attractive new community which already has schools open. Melcor has scaled back its land development this year in response to slower sales but this subdivision is still being developed which is positive. The shopping area is developed by Melcor and then the buildings are transferred to the Melcor REIT after being leased out. There was one new tenant open for business and a gas station is under construction. Basically it looks like this shopping area is prospering. I don’t expect any great news from Melcor or the Melcor REIT with their Q3 results. The REIT faces added vacancy of a large office where the Royal Bank has vacated several floors of its former Edmonton regional office. But the REIT should report fairly stable results and Melcor Developments overall will still be cash flow positive.

October 21, 2019

On Monday, the S&P 500 was up 0.7% and is once again over 3000. Toronto was up 0.25%.

American Express was up 2.0%. I added to my modest position today.

Andrew Peller was up 3.3%.

Statistics Canada reported that investment in building construction was up moderately in August. Even in Edmonton, with the lower oil prices, the commercial building never seems to stop. 

Polls are just about to close here in Alberta as I type this. Should be an interesting evening watching the results. 

October 20, 2019

On Friday, the S&P 500 was down 0.4% and Toronto was down 0.3%.

Shopify was down 5.4%. lulu lemon was up 1.0% to $207.

Over the weekend a new BREXIT deal failed to get passed. Boris Johnson was forced to write a letter to the EU to ask for a n extension beyond October 31. He did not actually want to send the letter and so he followed it up by another letter suggesting they deny his request. Strange days indeed.

There will lots for the market to pay attention to this week including lots of earnings reports. Also BREXIT progress as well as impeachment progress. Never a dull moment. If the saying that truth is strange than fiction did not already exist, it would surely be coined now.


American Express updated October 20, 2019

Our report on American Express is updated and rated Buy at $116.74. It has done well since we rated it (higher) Buy on January 19th. The stock price is up 16% since then and this is justified by its earnings and revenue gains. It’s not quite as attractive as it was in January but still looks like a good investment. I have only a small position and I want to add to that. 

VISA is a stronger brand but is not priced as attractively.

October 17, 2019

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

The market has not pushed Boston Pizza any lower as a result of the distribution cut by the smaller restaurant royalty entity SIR (main brand Jack Astor’s) which announced a distribution cut this weak. I have not seen any analyst comments about it.

Statistics Canada reported a gain in manufacturing sales for August.

Boston Pizza and market comment October 17, 2019 12:30 pm eastern

I am selling the rest of the BP units in an RRSP account today. I have kept the units I hold in a taxable account. I see a downside risk if they have to cut the distribution. And I don’t hold out much hope of any near-term big upside surprise such as much improved same store sales or a much improved outlook from the company. If there is no distribution cut then the units will likely remain trading about where they are. To date they have used some cash on hand to maintain the distribution despite the payout being a little over 100%. Ultimately, they need to achieve some same store sales growth. And perhaps they will given that the Ontario economy is strong and Alberta is slowly improving. However the remarks from the owner of Jack Astor’s that were in the news yesterday are not encouraging.

In other news there is a tentative BREXIT deal but the U.S. market has not risen on that news.

October 16, 2019

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

Stantec was up 2.2%. Toll Brothers was up 2.9%.

Linamar was up 2.4%. This was likely related to General Motors reaching a tentative union deal. That’s good. On the other hand Trump said today that there was no problem starting a trade tariff war with Europe since the U.S. can’t lose such a trade war because the U.S imports more from Europe than it exports. That kind of talk is not good for a company like Linamar. Trump has also talked about the chinese agreeing to buy more U.S. agricultural products. If so, that should be a positive for Linamar’s agricultural division. But I suspect it is far too early for farmers to be ordering new equipment.

The Boston Pizza units did not show much reaction to the news today that a smaller restaurant royalty entity (SIR Royalties – whose main brand is Jack Astors) is cutting its distribution by 16.7% after same store sales fell 5.9% in the latest quarter. They complained of a change in customer behavior in the full service restaurant business including more skip the dishes type orders which do not generate much in the way of beverage sales. This seems to have come up rather suddenly. They note that just last year they increased the distribution twice. 

It may be that “the market” does not view the situation at SIR Royalty Income Fund to have much relevance to Boston pizza Royalties Income Fund. I don’t know anything about SIR but I understand from BP that the full royalty is collected on skip the dishes type orders. Also BP Royalties excludes alcohol sales and so any decline there does not directly affect the distributable cash. BP has very little analyst coverage and we may see a delayed reaction tomorrow. As noted below I sold some BP units today to lower my risk. In one RRSP account that had a heavy allocation to BP I sold half the units. I have some also in a taxable account and did not sell in that account.

The latest rail car loading reports were out today. In the U.S. railcar loadings have been weak all year. Early this year they were running below the 2018 levels but above 2017. In the Spring they fell back to about the 2017 level. More recently they fell back to the 2016 level. In this latest week they are noticeably below the 2016 level. Not a good trend!

In Canada, the data had been much stronger with record car loads most of the year but more recently falling back to the 2017 level but still well above 2016 and with this week stronger than last week. 


October 15, 2019

Markets moved higher on Tuesday. This was likely due to continued optimism about progress on China / USA trade tensions. The outlook for a trade deal is likely to continue to cause volatility in the markets.

The S&P 500 was up 1.0% but Toronto was about unchanged.

Linamar was up 2.8% and FedEx was up 2.2%. Optimism over trade was likely the reason. 

Shopify was up a hefty 5.0% in Toronto catching up to its move in New York from yesterday.



Dollarama updated October 15, 2019

Our report on Dollarama is updated with a rating of (lower) Buy at $47.28. This has long been an extremely well-managed and successful retailer. Usually its shares have looked too expensive. It is probably about fairly priced at this time. It has had a history of outperforming expectations. 

October 14, 2019

On Monday, the Toronto stock exchange was closed for the holiday while the S&P 500 was down 0.1%.

In U.S. trading, Shopify was up a hefty 4.6%.

In Edmonton, it was announced that Toyota will move its west-end Mayfield dealership into West Edmonton Mall. This will be a very large investment by Toyota and West Edmonton Mall. Toyota certainly continues to have faith that auto dealerships are attractive and profitable businesses. Toyota seems to have big bright relatively new dealerships everyplace I go in Canada. These dealerships are owned by private dealers, not by Toyota. So this  shows strong faith in the business and hopefully that can bode well for AutoCanada’s dealerships as well. Looking up some history, the current owners of Mayfield Toyota bought it when it was failing in 1998 and completely turned it around. Hopefully we can see a big turn around at AutoCanada. New management is trying hard to correct the mistakes of the prior management.

Three large banks report Q3 earnings tomorrow (Tuesday) and that will be a big focus for the markets.



October 13, 2019

Markets rose of Friday as Trump hinted that some kind of at least partial trade deal with China was pending. Later on Friday he confirmed it was a partial deal and markets retreated somewhat from the highs of the day. 

U.S. markets are open on Monday while Toronto will be closed. As of late Sunday evening futures trades are suggesting a mildly higher opening tomorrow.

On Friday, the S&P 500 was up 1.1% while Toronto was about unchanged.

Stocks gaining included: Apple – up 2.7%, FedEx – up 3.0% and Linamar  – up 3.2% All of these would benefit from a trade deal.

Couche-Tard was down 1.9%. 

On Friday, Statistics Canada was out with a very strong jobs report. I always point out that the jobs numbers are only a statistical estimate based on  sample and therefore inherently subject to an error term. In addition they are seasonally adjusted so that the gain or loss in any month is over and above any change we would expect just based on things like students returning to school and the Christmas rush. While we should take any one month’s numbers withe “a grain of salt”, the strong September number comes on top of strong August numbers and there si really no denying that Canada has created a lot of jobs over the past year. My memory gores back to a time when the unemployment rate was well over 10% in the early 1980’s and you literally never saw a “help wanted” sign anywhere for years at a time at least in my small town in Nova Scotia. So, I marvel at just how good today’s 5.5% unemployment rate is. Yes, there are many who say it does not count people who would like a job but can’t be bothered to actually look for one. I can tell you from personal knowledge that unemployment was truly a LOT higher in the early ’80’s than it is today. Statistics Canada certainly says so. But there will always be those who choose not to believe the government figures. 

Further to the Melcor REIT acquisition. Like all REITs, their build assets are marked each quarter to their best estimate of market value. The REIT is buying a $55 million retail power center. They of course are paying market value by definition. Meanwhile according to their figures the REIT is trading at an “enterprise” (this means counting both debt and equity of about 86 cents on the dollar of market value. If the figures are to be believes, we retail investors can buying into these assets at 86 cents on the dollar versus what institutional buyers like the REIT itself are willing to pay. Normally, I would expect REITs to trade at some small premium to institutional market value.  Overall, a 14% discount to market value is not huge but gives some comfort that the REIT is undervalued. Looking at only the equity value of the REIT units the discount to book value is about 30%. Now it could be that the REIT is over-stating the value of its assets and they really are worth less than book value. But they are supposed to report those figures to the best of their ability. There are never any guarantees but these REIT units seem attractive for a portion of a portfolio. They are not likely about to soar but they should continue to spit off a yield that seems attractive. (Recently 8.75%).



October 10, 2019

Markets were higher Thursday on (faint) hopes of progress in the China / USA trade talks.

The S&P 500 was up 0.6% and Toronto was up 0.3%.

TFI International was up 3.6%. 

Couche-Tard was down 1.9%. It may be under pressure due to its exposure to selling vaping products.

lulu lemon was up 3.1%.

Given the slow down in global growth and apparently a decline in global trade and given the potential impeachment of Trump, I think the stock market is certainly vulnerable to declines. It always is really, but it seems more so at this time. 

Linamar’s price is already  down a lot and while it looks very cheap it could be vulnerable. They have already telegraphed to some extent that their Q3 report will be weak and their outlook will also be deteriorating. They remain optimistic about the future but the stock market may focus on near-term issues. Progress on trade talks and on the GM strike would be helpful.

I remain optimistic about Toll Brothers as lower interest rates are a positive. 

See also the update on Melcor just below this post.


Melcor REIT Acquires Shopping Centre – October 10, 2019

The Melcor REIT and Melcor Developments have announced that the REIT is acquiring, for $55 million, a retail shopping “power centre” in Grande Prairie which will increase the REIT’s square footage by 9.7%. As part of the deal, Melcor Developments will purchase between $10 and $15 million of units from the REIT (Likely closer to $10 million as it depends on the proceeds from the REITs convertible debenture issue which has apparently already sold out today.)

Overall, I think this is a good development and indicates that Melcor still has faith in the Alberta economy. But there are aspects of the deal that I don’t like. I don’t like to see the REIT issuing units at the current 30% discount to book value. This is partly alleviated by financing the purchase largely with debt. And from the perspective of Melcor Development share owners there is really no issuance of net equity. However the new $40 million (probably will be $46 million with the over-allotment) is convertible at $8.90 which is a 20% discount to the REIT’s book value per share. That likely means a future issuance of REIT units at a minimum of a 20% discount to book value. 

REITs work best when they can acquire new assets by issuing equity at or above book value. In those cases the issuance is accretive to cash flow per unit AND to book value per unit. In Melcor’s case the issuance is accretive to cash flow but dilutive to book value per REIT unit (and more so if the debenture ends up converting at some point).

Still, this is probably a modestly good development for both the REIT and for Melcor Developments. It also indicates that management is active in attempting to grow the business.

Another point: Checking insider Trading a younger Melton family member who runs their U.S. operations sold a modest number of Melcor Development shares on October 1. He has done this a few times before. Disappointing, but maybe he simply needs the cash. Melcor itself has been buying back its meager allowed 1000 shares most days, so that is positive.

FedEx updated October 10, 2019

FedEx is updated and now rated only Speculative (lower) Buy at $138.39 (Its moved slightly higher at $140.49 as I post this). FedEx has been hurt early and hurt hard by the global slowdown in the manufacturing and industrial sector and the associated trade. They have slashed their adjusted earnings outlook to a drop of 16 to 29% for the current fiscal year ending May 31 2020. And that could worsen if trade tensions further escalate. But they are cutting costs and investing for growth in ecommerce and expect profits to resume growth in the next fiscal year. They also face another possible hit to their pension valuation as interest rates have declined once again. The company looks relatively cheap based on past earnings and is not expensive based on the projected lower earnings. It is possible that the share price is already reflecting the poor near term outlook. But overall given the weak outlook it is probably best to wait for a lower price and/or some sign of improvement including major progress on a China USA trade deal. I hold a very few shares and will continue to hold those and have placed an order to add to that if it happens top drop to $124.

October 9, 2019

On Wednesday, markets were positive due to some optmisim about the China / USA trade talks.

The S&P 500 was up 0.9% and Toronto was up 0.5%.

Costco was up 1.7%. Then, after the close it reported September same-store sales up a strong 5.6%. That is strong growth. They do not disclose how much of that is due to price inflation as opposed to volume. 

Couche-Tard was up 2.1%. Dollarama was up 2.5%. Linamar was up 2.1%. WSP was up 2.0%.

Boston Pizza Royalties announced its latest distribution – unchanged at 11.5 cents per unit per month. I worry that they may need to cut that to 11 cents or 10.5 if they can’t show some increase in same-store sales. I’d like to see more advertisements from them. The parent company collects advertising fees from the restaurants and does spend it. But wherever they spend it, I don’t see the ads.  I worry that they don’t have any compelling message to bring people in. Searching for news, I see that they have a new partnership with Hockey Night in Canada as way to bring people in to watch the games. 

The latest railcar loading reports were out today. The weak trend in the U.S. continues with carloads below 2018 and 2017 and about equal to the same week in 2016. Canadian car had weakened somewhat in the few weeks and were noticeably weak in the latest week. Petroleum car loads show a sharp decline versus recent weeks. All in all, the carload report is more evidence of a softening economy and especially softer trade volumes.



October 8, 2019

On Tuesday, the S&P 500 was down 1.6% and Toronto was down 0.6%.

Correspondingly, most of the stocks on our list were down. 

TFI International was down 3.0% to $37.76. The company has been buying back shares aggressively and the shares do appear to represent good value.

CMHC released housing start data for September. Single family starts in Alberta were up 8% although to only 952. The Calgary area was up 37% although only to 383. These figures may suggest that the Alberta market is at least no longer declining which is a positive for Melcor Developments. Year to date,  Alberta single family starts were down 19%.

Statistics Canada released building permit data for August. For Alberta residential permits in August (includes multi-family) were up 1.5% year over year. This indicates stability although at much lower levels compared to peak levels.


October 7, 2019

On Monday, the S&P 500 was down 0.45% and Toronto was down 0.2%.

Dollarama was down 2.65%. 

Apparently, Alberta is about to announce that it has sold some of its crude-by-rial contract commitments to the private sector. I would have thought the government would have to pay the private sector to take those contracts. Why? Because to the private sector they are only profitable if there is a wide spread between the Alberta price and the American price. But, the more crude by rail that ships, the narrower the discount! Only the provincial government would have been in a position to do large crude by rail shipments at a narrow and unprofitable discount. The overall benefits to the economy would out weigh the losses on the shipments. 

Now the province is cleverly offering to relax its mandated production cuts if the extra production goes out by rail. Possibly this could mean the government will sell some of the contracts without a loss. But I am skeptical, I think if honestly accounted for the contracts will be sold at a loss becasue they are so much more risky in the hands of individual private companies than they were in the hands of the government. Again. this is because the government did not need to make a profit on crude by rail as the added volume and lower differential would have brought in huge revenues in taxes and royalties out weighing the loss in shipping. On top of that the general economic benefits that would be spread across the economy. A government can afford to spend money to support the wider economy. A private company can only afford to spend money to support its own profits. I explained my thinking on this more fully back in March


October 6, 2019

On Friday, the S&P 500 was up 1.4% and Toronto was up 0.4%.

Linamar rebounded somewhat, up 4.4%. Most stocks were up.

The U.S. added fewer jobs than expected. But the unemployment rate is a record low 3.5%. Virtually, it seems there is almost no one left to hire. The jobs report was taken as a sign of economic weakness and so expectations for further interest rate cuts went up which is generally positive for stocks.

As one comedian put it, the Democrats continue to make inquires to try and prove that Trump did those things that he openly admits to doing.

In can anyone missed it, last weekend I sent a link to our free newsletter.



October 3, 2019

On Thursday, markets started out negative but finished positive with the S&P 500 up 0.8% and Toronto up 0.4%.

Linamar got hammered down 10.3% after indicating that sales were slowing in all three of its categories (auto parts, access – i.e. scissor lifts etc., and agricultural equipment. On top of that, the GM strike is costing it additional sales and profit loses. Linamar may not say anything further until its Q3 results are released. They will likely still be projecting good (although lower) profits in 2020. They may also be facing goodwill write-offs particularly on the big agricultural acquisition made in early 2018. While the company will likely resume earnings growth after a pause, investors heading for the exists could continue to push the price lower. Near-term catalysts for a an increase would be an end to the GM strike and/or significant progress on trade tensions.

Canadian Tire was down 2.7%, Couche-Tard was up 2.0%.


October 2, 2019


On Wednesday, the S&P 500 was down 1.8% and Toronto was down 0.8%.

Accordingly, most of the stocks on our list were down. The bigger decliners were Apple down 2.5%, BHP Billiton – down 2.9%, Visa – down 2.6%, American Express -down 3.3%, and AutoCanada down 2.9%.

September auto sales for Canada were reported today. August results ahd been up slightly and had been the first increased month in about a year or more. But September was another decline, down 3.7%. Overall, I would not expect a great Q3 report from AutoCananda even though they were growing better than the industry average as as of Q2.

After the close Linamar released some industry sales conditions figures and it seems very clear that they will report a decline, perhaps a large decline, in profits in Q3. It’s hard to say to what extent that is already priced into the stock but certainly the stock seems likely to decline on this news. They are being hit by a softer economy and the trade wars in all aspects of their business. But they did say they are picking up business as some competitors go out of business.

In terms of bargain hunting, I intend to deploy cash only quite slowly. I added a little to my TFO International position today.

The latest rail car loading reports were out today. The smae trend is continuing. That is, the U.S. is recently running lower than any of the past three years. Canada is running below 2018 and close to the 2017 levels but well above the 2016 levels.

October 1, 2019

Tuesday was a down day in the markets as the S&P 500 fell 1.2% and Toronto was down 1.3%.

With the economy softening, I would be inclined to hold more cash. But I always find it difficult to part with most of the stocks I own and so I have very little that I am willing to sell. Therefore I will likely keep holding and will look to deploy my small cash position slowly if and as bargains arise.

Linamar was down 4.0%. This company faces slower auto sales and also trade issues on auto parts. In addition its agricultural division is suffering as farmers delay spending due to tariff issues. Despite being very cheap in relation to earnings it seems that this stock could certainly go lower before ultimately recovering. Yahoo Finance shows it as trading at 5.26 times trailing earnings and basically the same at 5.25 times forward earnings. That implies that analysts expect earnings to be unchanged in the next year or so. But if that were true, which should it trade at such a low multiple? Perhaps more likely, earnings will decline in the next year. But the company seems confident that it will ultimately continue to grow.



September 30, 2019

Today marks the end of the third quarter. Soon, the next round of earnings report will start to flow in.

On Monday, the S&P 500 was up 0.5% while Toronto was down 0.2%.

Toll Brothers was up 2.4%

TFI International was up 2.7% after announcing that it has authority to buy back up to 7 million shares. This represents a hefty 9.0% of outstanding shares. Many companies get authority to buy back shares buit then buy back very few. TFI has a history of buying back aggressively when they think their price is too low and when they also have the funds to do so. In the past year,  TFI bought back 7.0 million (as of September 18) out of an authorized 8.3 million by September 30. And the 8.3 million had been bumped up just at the end of August from an earlier authorization of 7.0 million shares. The average price TFI paid in the past year was $39.59 and they continued to buy up until September 18, at about that same price. It appears that they have not yet disclosed whether they purchased any shares after Setpember 18.

In last evening’s press release, TFI seems very clear that they view their shares as under-valued. TFI’s management has proven themselves to be very smart. I would take their views on the share price and their buying back activity to be a very positive signal. Our rating on this stock is (higher) Buy at about its current price. I am happy to hitch my wagon to this company and its management for a portion of my portfolio.



ETF INVESTING Articles Updated

I have updated two articles that go into detail on specific ETFs to consider investing in.

The first article covers the relatively new balanced fund ETFs from Vanguard and iShares. These could be especially useful for newer investors and for anyone who wants a more passive, perhaps less stressful, approach. If someone wants to know how to start an investment portfolio, they could do a lot worst than just put a lump sum into VBAL or XBAL or one of the variations around this that are available. 

That article also provides a list of ETF symbols that could easily used to put together a customized balanced ETF. For example some investors might want to customize the fixed income component in regards to the amount of long- versus short-term bonds or perhaps including REITs and preferred shares and GICs rather than strictly bonds. And some investors would want a different allocation of equities between Canada, the U.S. and the rest of the world. 

And for those looking for a much more customized or a-la-carte approach, I have updated my detailed ETF article that provides a wide range of Canadian ETFs that also includes P/E ratios and yields and, in many cases, my thoughts on whether each ETF is attractive at this time. There are tons of links in this article. Financial and High Dividend ETFs were among the ETFs that looked most attractive.


September 28, 2019

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

One of the old favorites on this site but no longer on the list, Wells Fargo, was up 3.8% after announcing its new CEO. Apparently he will work out of New York and not have to bother moving to actual headquarters in San Francisco. Which probably effectively means that head office will in substance move to New York. I’m not sure that Elizabeth Warren is done pounding on Wells Fargo yet. 

September 26, 2019

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

So far, it appears that the market is ignoring Trump’s problems regarding favors from Ukraine. But it does look like those problems are real.

The most notable move in the stocks on our list was TFI International, up 1.9%.

After the close Canadian Western Bank announced that it has approval to buy back up to 2% of tis shares starting October 1. However, I don’t expect them to actually buy back any shares unless the price goes back to about $28. They had authority to buy back shares in recent months. They bought back a few shares in May and June but ceased buying when the price went over about $28.20. They prefer to hang onto their cash and equity capital (two different things, by the way) for potential use in some kind of business expansion.

Checking some other companies: Melcor has bought back their tiny allowed maximum of 1000 shares on many but definitely not all days since they resumed buying on August 9th. They had not previously bought any since the end of March. CRH Medical continues to buy steadily but they only report it monthly so the last month reported was August. TFI International was buying steadily until September 3 but thereafter has stopped buying (except for a very tiny amount on a few days). This may be due in part to the price going over $40 but it may also be that they think the share could get cheaper as the economy softens and/or trade tensions continue. Stantec resumed buying back shares in August after having stopped buying at the end of March. They paid about $28. They have not yet reported September.

September 25, 2019

On Wednesday, the S&P 500 was up 0.6% while Toronto was down 0.1%.

Shopify recovered some of its recent losses, gaining a hefty 6.9%.

Toll Brothers was up 1.7%. But that was a modest gain considering that the report on new home sales was very strong: “Reports last week showed housing starts and building permits jumped to a more than 12-year high in August, and home resales rose to the highest level in 17 months.” It might be considered that Toll won’t benefit as much because its homes are at higher price ranges. But they also now have lower priced homes as well. And, if the value of smaller or older homes increases then some of those owners find it easier to move up into more expensive homes.

Regarding Couche-Tard. I would not be surprised if its stock comes down somewhat due to all the concern about vaping products. But I am not going to sell on that theory. Instead, I will plan to buy more if it comes down enough.

September 24, 2019

Markets were mostly negative on Tuesday with the S&P 500 down 0.8% and Toronto down 0.4%. This was blamed on trade tensions. Also, the Democrats moved to explore impeaching Trump – but in this strange world that was not really big news.

TFI International was down 2.8%. I would like to add to my position in this.

AutoCanada was down 2.0%. I bought back a small portion of what I had sold earlier at higher prices (but at a significant loss). This is a risky investment but I did like the progress shown in their Q2 report.

Toll Brothers managed a gain of 1.2%. There will be a report out tomorrow (Wednesday) on the latest U.S. new home sales numbers. It is expected to show an increase.

Statistics Canada reported the July numbers for “food services and drinking places”. Year over year sales were up 2.5% entirely due to inflation. Given there were likely more restaurants than last year, this would mean that same-store sales were likely weak as in maybe 1%. I am following this because Boston Pizza needs to achieve a bit of same-store sales growth in order to maintain its distribution. In that regard, the July figures don’t suggest that BP will have gained much if anything in same-store sales since I believe it has been lagging the market in that regard. So far they keep maintaining the same distribution despite paying out 103% of distributable cash on a trailing year basis. They have some cash reserves that allows this but they need to show some growth in distributable cash per unit in order to get the payout ratio back to 100% or a bit below. My hope has been that they achieve that even if just based on inflation in food prices – also also helped by Skip the dishes sales. And if not, I suspect any distribution cut would be modest. But the unit price would likely react quite negatively to any cut. One thing I don’t expect is any increase to that distribution in the foreseeable future (like the next year or probably two). But meanwhile the yield is 8% which is nice.

September 23, 2019

On Monday, the S&P 500 was about unchanged while Toronto was down 0.2%.

lululemon was up 3.1%

FedEx was down 2.2%.

Statistics Canada reported that Wholesale sales rose in July and that “the personal and household goods subsector and the motor vehicle and motor vehicle parts and accessories subsector contributed the most”.

Checking the Alberta economic dashboard I see that Alberta’s population rose 1.7% (year over year) in the second quarter of this year. Net migration (from all places outside of Alberta) versus Q1 2018 improved by 40% in Q1 2019 to 10,474. But the vast majority of the increase in population which was about 75,000 new residents was due to births outnumbering deaths.

September 21, 2019

On Friday, the S&P 500 was down 0.5%. But Toronto was up 0.25% and sits at a record closing high.

Canadian Tire was up 3.35% to $148.82. This is a good recovery from the $133.43 level of our update of last month. The recovery is likely due to analyst reports indicating that the stock was under-valued.

lululemon was down 2.2%. FedEx was down 2.4%. CN Rail was down 1.9%. It seems that the market is worried that the world economy is slowing.

Statistics Canada reported that retail trade was up in July for the first time in three months. But the increase was less than analysts had predicted.

September 19, 2019

On Thursday, the S&P 500 ended the day unchanged while Toronto was up 0.35%.

Couche-Tard was up 2.4% and has recovered a good portion of its recent decline from its high.

Toll Brothers was little changed despite a report this morning indicating that “U.S. home sales unexpectedly rose [1.4%] to a 17-month high in August for a second straight month of gains, the latest sign that lower mortgage rates are encouraging buyers off the sidelines.”

The Organization for Economic Cooperation and Development (OECD) lowered its outlook for growth of the world and of Canada’s economy for 2010.

September 18, 2019

On Wednesday, the S&P 500 ended the day about unchanged and Toronto was down 0.2%

The Federal Reserve lowered interest rates by 0.25% in light of potential risks to the economy posed by trade tensions.

FedEx fell 13% due to its poor quarterly earnings report and lower outlook. The disappointing earnings and lower outlook was also blamed, in part, on trade tensions.

Toll Brothers was down 3.7%. That was in spite of a new report that ” U.S. home construction surged in August to the fastest pace since mid-2007 on more apartment projects and single-family houses, a welcome sign for the housing sector that has struggled to gain momentum.” And, “Permits, a proxy for future construction, also increased to a 12-year high. ”

September 17, 2019

On Tuesday, the S&P 500 was up 0.3% and Toronto was up 0.5%.

Restaurant Brands was up 3.4%. Dollarama was up 2.4%.

Shopify was down 2.6% to $435.67. or U.S. $328.82. That’s actually pretty strong considering the company sold shares today at U.S. $317.50.

After the close, FedEx announced quite weak earnings and a weaker outlook and the stock fell close to 10% in after-hours trading.

September 16, 2019

On Monday, the S&P 500 was down 0.3% in a mild reaction to the partial destruction of Saudi Arabia’s oil refining infrastructure. Toronto was up 0.4% as oil rose about 10% in reaction to the reduced capacity of Saudi Arabia.

The large cap energy ETF XEG was up 9%.

Toll Brothers was up 5.2%. This was likely in reaction to an influential analyst “upgrading” the stock.

Couche-Tard was down 3.9%. I don’t know if that might be related to the potential that its sales of vaping products might be restricted due to new health concerns. In any case I am not too concerned and would consider adding to my position in this company if the price declines another few dollars.

Shopify announced it will sell 1.9 million class A subordinate voting shares. I did not see a price mentioned. The press release seems to imply that this is a new class of shares (since it said the issue was conditional on the shares being listed on the exchanges, but I don’t think that is actually the case. This move will likely cause a drop in Shopify’s price.

September 16 11:00 am eastern

The big news for markets over the weekend was the major attack on the Saudi oil refining. This morning the S&P 500 is down 0.3% which is not a big reaction. Toronto is up 0.4% because oil prices are up a hefty 10%.

The large cap energy ETF, XEG is up 6.8%.

Perhaps unrelated, Linamar is up 2.4%.

September 12, 2019

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

Toronto hit a new within-trading-day high.

The European Central Bank announced anew round of bond-buying which will keep interest rates lower-than-low in Europe.

Shopify was up for the second day and was up 2.8%.

Visa was up 1.7%. Restaurant Brands was up 1.6%.

Couche-Tard was down 2.0%. The recent health problems linked to vaping and calls to ban flavored vaping and possibly restrict all vaping could be a drag on this company.

September 11, 2019

Markets were strong on Wednesday with the S&P 500 up 0.7% and Toronto up 0.45%

Canadian Tire was up 1.9%.

Toll Brothers was up 3.2% and then after the close announced a relatively small acquisition of a builder of mostly more moderately priced homes. This was in South Carolina.

SNC Lavelin (mentioned several times but not on our list) was up 4.5%. CIBC has reestablished coverage and Jarislowsky Fraser has announced it has increased its position. It’s definitely a speculative pick.

Costco was down 2.2%.

CN Rail indicates that traffic in Q2 is about flat with last year. This is somewhat confirmed in the latest rail car loading reports. Canada in the latest week was equal to 2018 in volume. But for the U.S. volumes continue to be back to 2016 or 2017 levels in recent weeks. For CN, we might see a somewhat lower stock price ahead. I would welcome the opportunity to buy if it happens to pull back towards $100 certainly. But that may not happen as CN has also increased its freight rates which could offset the flattish volume in Q3. CN will likely tend to continue to do well over time.

September 10, 2019

Although overall markets did not move much today there was a lot of movement in various stocks. The S&P 500 was almost unchanged and Toronto as up 0.3%.

Restaurant Brands was down 4.2%. Possibly, this was related to Wendy’s announcing it would roll out a breakfast offering and that its profits would decline as a result of start-up costs. Starbucks was down 4.0%.

SNC Lavalin (not on our list but which I have mentioned) bounced up 12.3%. I did not see what news drove this.

Shopify was down 6.2% despite announcing a the acquisition of a fulfillment company. I don’t trade or ever analyse stocks based on momentum but those who do may be asking if the uptrend has been broken.

FedEx was up 2.9%. Toll Brothers was up 2.25%.

Visa Inc. was down 2.9%.

TFI International; was up 2.45% and Linamar was up 2.0%.

All in all, a good day for our stock picks.

Statistics Canada released building permit date for July. Non-residential building permits were up a hefty 21% year-over-year in Ontario. Alberta had a 22% drop in non-residential. There has been a LOT of commercial and multi-family building activity happening in and around Edmonton for years even despite the lower oil prices. But activity is slowing down.

Costco update September 10, 2019

Costco is updated and rated (lower) Sell at $296.05. Basically, if I owned it I would sell at least half of the position at this price or avoid having a very large position. On the other hand it is a great company and although the valuation would suggest sell, another option would be to hold and buy more on a substantial dip.

Everything about the company is great except that it trades at a hefty 38 times trailing earnings. That’s about double the stock market average. Even based on forecast earnings it has a P/E of about 35. Costco will almost certainly grow its earnings per share faster than the market average. So it does deserve a premium P/E multiple. But the issue is whether 37 is just too high. Costco could also once again issue debt to increase its leverage and ROE. And it could declare another special dividend. These things would help support the stock price.

Historically it has been a mistake to sell Costco just because it got expensive. So I am cautious about rating it even a (lower) Sell. But I just could not justify such a high P/E ratio. I’d love to have a chance to buy it a much lower multiple say down towards 26 times earnings – which would still be a premium multiple.

Alimentation Couche-Tard comment September 10, 2019

“Couche-Tard“, as the company is often referred to, has been a very long term winner. And, after several years where the share price did not do much, the stock is up about 60% versus a low point in May of 2018.

For quite a few years I thought that declining cigarette sales would eventually be a drag on earnings. Instead tobacco and related products have continued to grow due to sales of vaping products. That’s good for the company although not so good for health. It’s astounding that the western world after years of work to reduce tobacco sales allowed vaping products to become mainstream apparently even among teens. That is not good, but it does benefit Couche-Tard.

In their recent conference call, management discussed many initiatives to increase earnings. In particular they are adopting many ideas and practices from the “Holiday” chain of stores that they acquired not so long ago. I see it as a sign of excellent management that Couche-Tard actively adopts best practices from the many chains that it has acquired. This shows that arrogance has not set in.

Couche-Tard has a goal of once again doubling its financial size in a five year plan that started about 18 months ago. I like their chances of doing so. After its recent rise, the stock is not as attractive as it looked in 2018. We recently rated the stock (lower) Buy at $84.57. It will likely continue to do well over time.

September 9, 2019

Markets were relatively flat on Monday with the S&P 500 unchanged and Toronto down 0.2%.

Stocks on our list that moved up included FedEx – up 3.4%, TFI International – up 1.7%, and Linamar – up 1.7%.

lulu lemon was down 4.3%, giving back some of its recent strong gains.

Shopify was down 5.9%. That stock is certainly pricing in tremendous growth and future profitability. After the close it announced the acquisition of a fulfillment company. On that news it rose slightly in after-hours trading.

American bank stocks rose sharply today. American consumers increased their credit card spending at a fast rate in July. This is generally seen as a sign of confidence.

Visa Inc. updated September 9, 2019

Our report on Visa Inc. is updated and rated Weak Buy / Hold at $181.55.

Visa certainly has wonderful economics and is extremely profitable and is growing earnings rapidly. But with a price/earnings ratio of 35, the stock is arguably fully valued. A P/E of 35 seems expensive for a large mature company. At some point it can’t keep growing earnings at numbers like 15%. On the other hand it may continue to do so for a number of years yet as the world continues to move to digital payments. It may be the case that it is better to pay 35 times earnings for an extremely wonderful profit machine than to pay say 10 times earnings for a mediocre company subject to intense competition. This company has been a great investment over the years even when it was trading at a P/E of over 30. Still, I would prefer to wait for a lower P/E before buying or at least before buying any material amount.

September 6 – 7:45 am eastern

Markets were strong on Thursday as the S&P 500 rose 1.3% and Toronto was up 0.8%.

lululemon was up 4.3% and that was before it released a strong earnings report with revenues up 22% and beating expectations on earnings as well and it rose a further 5.0% in after-hours trading.

FedEx was up 3.3%.

Linamar was up 3.7%

Markets were higher on optimism about trade talks with China. The markets are also expected to open higher this morning.

September 5, 2019 (8:00 am)

On Wednesday the S&P bounced up 1.1% and Toronto was up 0.3%.

FedEx was up 2.4% and Dollarama was also up 2.4%.

TFI International was up only 0.1%. With the company recently increasing its already very large share buy back program because they think the stock is under-valued, I think this stock will do well. They tend to keep on delivering higher profits and the stock price should follow.

Alimentation Couche-Tard released another strong earnings report and will split its shares two for one. I have been a fan of this company for a long time. It probably can’t grow as fast as did historically but it will grow and it looks like good value at this time. Like TFI they keep on delivering better results almost every quarter. Apparently the good earnings were as expected so the stock may not react much today but it will almost certainly rise over time.

The Bank of Canada left interest rates unchanged yesterday and apparently does not like the idea of cutting so that may change the expectations.

P.S. 8:45 eastern: August auto sales have been reported and were up a very small 0.3% year over year. I believe this marks the first month without a decline in something like a year or more. Fiat Chrysler which is the most important brand for AutoCanada was up 27% although this was an estimated figure. Fiat Chryler sales had declined more than the industry for the last year or more and so this appears to be a good turn around for that brand. AutoCanada has said it likes its Chryler stores. They also said they are not looking to sell anymore dealerships in Canada. But they do have I believe four of the poorly performing U.S. dealerships for sale. They may continue to do more sale and lease-backs in Canada.

September 3, 2019

Markets were weak on Tuesday with the S&P down 0.7% and Toronto down 0.3%. This was due in part to a decline in U.S. manufacturing activity likely related to the trade war.

Most stocks were down. CRH Medical was down 4.6% despite announcing it was acquiring the 49% minority interest in one of its subsidiaries. CRH has a nice business but as indicated in our report I would think there is some risk of colonoscopies (they do the anesthesia) becoming a lot less needed due to new technologies including swallowed cameras.

I am usually tempted to add to positions on dips but I will likely not do so and instead will maintain my small cash position in case much better bargains emerge.

It looks like Britain is about call an election. The reduced chances of a hard exit from the European Union that was potentially to happen on October 31 is probably good for markets although futures markets for tomorrow are down marginally at the moment.

AutoCanada updated August 31, 2019

Autocanada is updated and now rated Speculative (lower) Buy at $8.45.

In their Q2 report recently released there is a lot of improvement. Higher sales and gross profits. It appears that they have turned the corner on losses and should be profitable going forward at least excluding any unusual items and writeoffs. Based on analyst forecast earnings the forward P/E is shown as 6.3 which is attractive if it can be believed. And the price to book value ratio is attractive at 0.62. But on a trailing year basis they were still losing money. The 2018 U.S. acquisition continues to lose money. The new (as of mid 2018) management seems very optimistic. It is even possible that they could get a take-over offer since a group of auto dealers is probably an attractive business for private equity and certain pension funds.

They still face the headwinds of a slower auto market in Canada (but they managed growth in Q2 despite that) and the losses in the U.S. division but the Canadian dealers are profitable and improving.

Given the poor performance of this company (partly due to lower industry sales but mostly due to the former management’s disastrous and inexplicable U.S. acquisition where they paid $132 million for a bunch of money-losing leased dealerships) and given some possibility that their debt and lease obligations will cause problems, I am reluctant to add much to my position (I had sold I believe about half of my position back in March when I rated it Sell at $11.83 which was disappointing having previously thought it was a buy at much higher prices). Still, I may be tempted at this price given the numerous improvements seen in the latest quarter.

August 30, 2019

On Friday, the S&P 500 was up 0.1% and Toronto was up 0.35%.

Most stocks on our list were up.

I read the conference call Transcript for Canadian Western Bank today. While there are always risks related to the economy, the tone of that conference call certainly seemed very positive to me. CWB is very likely to continue to do well in terms of earnings. And the stock price will follow at some point.

TFI International announced an increase to their already large stock buy back program. TFI management certainly sees the stock as under-valued.

Statistics Canada reported good growth in GDP for June and for Q2.

August 29, 2019

Markets were strong on Thursday with the S&P 500 up 1.3% and Toronto up 0.7%.

Linamar was up 2.35%. And FedEx was up 2.7%. Presumably both related to more optimism or less pessimism about trade wars.

Canadian Western Bank reported Q3 earnings which really could not have been expected to be much better. Growth around 10%. Credit losses down marginally. The only negative was a slightly lower net interest margin due to lower rates. Also admin costs were up but that was expected. The stock rose only 0.35% despite the markets having a strong day. Basically, it seems that investors are cautious on bank stocks and so CWB remains cheap and I believe attractive.

The bank did say that 2019 earnings growth is expected to be slightly below their medium term target. That could be mostly due to Q2 which had low growth. Overall the tone from management remains optimistic.

Also, they increased the dividend by 4% and that is the second increase this year.

August 28, 2019

On Wednesday, the S&P 500 was up 0.65% and Toronto was up 0.5%.

Most stocks were up while most of the rate reset preferred shares were down a little.

National Bank reported good results. Hopefully, Canadian Western Bank will as well.

Checking the latest rail car loading reports out today (a good indicator of economic activity) the pattern continues of the U.S. being weaker than last year. Canada has been running at or above last year most weeks (so a record high level) but this week was slightly below the same week last year. Not enough below to indicate any concern.

August 27, 2019

On Tuesday, the S&P 500 fell 0.3% – probably because the market’s faith that a China trade deal is closer started to wane. Toronto was up 0.5% as oil prices were higher.

Couche-Tard was up 2.1%. This has been a winning company for many years. And they have a five year goal and plan to double their financial results in the five fiscal years ending April 2023. They are now in the second year of that plan. I would like to increase my position in this company over time.

Costco was up a hefty 5.0%. They just opened their first store in China and apparently the crowds were so heavy that they had to close early for safety reasons.

AutoCanada was down 5.7% to just $8.33. There was no news from the company today. I suspect some analysts have basically thrown in the towel on this company. On Friday it had announced that it had done sale and lease back deals on two more of its dealerships and I believe in the Q2 report they indicated that will be the last of those deals. Those deals provide cash but come at the cost of the long-term lease liability. The company had reported a lot of progress in Q2 but still reported a loss due to their U.S. operations. The new management under Paul Antony has taken a lot of actions to correct the past mistakes.

Director, Dennis DesRosiers purchased 10,000 shares on August 13 at $9.72. Dennis has spent decades reporting on Canadian auto industry sales and so I view this buy as a definite positive signal. The only other insider trade this year was that the departing CFO sold all of his 30,000 shares at $11.45 back in March. That was a negative indicator but he was exiting the company.

Also, a report tonight indicates that Mawer New Canada Fund has purchased AutoCanada shares this year as one of only five new investments. Mawer has a very good reputation and so this is a positive development.

Melcor Developments was down 2.2% to $11.65. That puts it at about 37% of book value which seems ridiculously low considering the nature of its assets. The company does have debt but the debt is largely on its investment rental properties which are profitable after covering the interest charges. Melcor’s stock is extremely thinly traded. Its price appears to reflect an extremely gloomy outlook. They will almost certainly sell fewer residential building lots in Canada this Q3 compared to last year. They also sold 140 lots in the U.S. in Q3 last year and due to the lumpy nature of U.S. sales they may or may not sell any in Q3 this year. Profits are likely to be low but positive until home building in Alberta returns to a faster pace. However, they are well positioned to simply hold onto their valuable land holdings. They have significantly slowed their land development activity which reduces capital spending. They continue to profitably develop commercial buildings. This is a conservative company that can withstand the current softer market conditions.

Melcor has resumed buying back shares but is restricted to a tiny 1000 shares per day on the market. But they are also able to do larger block trades and I understand there is one such purchase expected to be finalized shortly.

The outlook for residential home building and Melcor depends to some extent on progress with pipelines and there has been some progress recently.

August 26, 2019

On Monday, the S&P 500 was up 1.1% and Toronto was up 0.4%. This came after President Trump said that China was ready to negotiate a trade deal. There is probably little reason to believe it but the market of course wants to believe it, so they do, at least to some extent.

Canadian Western Bank was up 2.3% to $30.94. It looks cheap on the basis of price to book value and the P/E ratio. They report Q3 earnings on Thursday. Earnings should be solid unless they have experienced unexpected loan losses. Net Interest Margin may have declined somewhat due to lower mortgage rates (and possibly lower rates on other loans) and the market will be trying to forecast if that margin will fall further in Q4 due to lower loan interest rates combined with deposit rates that have not yet been adjusted down for the possible Bank of Canada rate cut. Analysts will also be looking carefully at any increase in impaired loans or loan loss provisions. So far, CWB management has expressed confidence that they do not expect to see materially higher actual loan losses even if impaired loans rise (they tend to get good recoveries as their loans are mostly secured). Steve Eisman has pointed out that Alberta Treasury Branches has experienced higher loan losses and provisions and he thinks some of the same will apply to other banks. Overall, with low natural gas prices and slower economy in western Canada and with the potential for lower interest rates and higher loan losses, we should probably not expect CWB’s Q3 report to be good enough to push CWB’s price up much (and it could fall) despite its attractive valuation. I would like to see CWB give an update on its move to the more favorable method of calculating its risk-weighted assets. That move in 2020 is expected to boost profits, although they have not yet said by how much.

Ultimately CWB will almost certainly continue to grow over the years and the stock price will follow although not in a smooth fashion.

August 25, 2019

On Friday, the S&P 500 was down 2.6% after Trump escalated the trade war with China. And Toronto got pulled down 1.3%.

Almost all of the stocks on our list were down. Among the hardest hit were Apple – down 4.6%, and FedEx – down 3.9%, and TFI International – down 3.2%.

Linamar was down 3.7%. It has experienced slower sales in its agricultural division due to the trade wars and this could certainly get worse before it gets better.

It seems to me that Donald Trump wants a trade war. It may be that his strategy is to paint China and many other countries as basically enemies and himself as the right leader to fight these enemies.

The U.S. economy and the stock market has done very well under Trump so far. But there is certainly a risk that the economy is now softening and an even bigger risk (for investors) that “the market” will now decline in the face of the risks of the escalating trade war. So far, the market has bounced back with the next kernel of positive trade news. But that may not last. Over the weekend there was apparently some progress on a trade deal with Japan. I am skeptical that this will be enough to reverse Friday’s negative tone.

August 22, 2019

In Thursday’s markets the S&P 500 was about unchanged and Toronto was down 0.3%

Toll Brothers was up 2.0% presumably because the analyst comments were somewhat positive today after they digested the Q3 earnings report and conference call.

With RBC and CIBC having now reported Q3 earnings, I understand both did well on their core Canadian personal and commercial banking. But Steve Eisman (of The Big Short) expects Canadian banks to have to increase their loan loss provisions soon. Given his track record, his comemnts carry weight.

He also mentioned today that he is short Canadian Tire. He thinks Canadian Tire will face bigger losses on its credit card operations. He also thinks that Amazon is hurting and will hurt their business. Again, given his track record and stature his views count and he may be right. On the other hand, Canadian Tire has been very well managed for many years and continues to post good results and to express optimism.

Statistics Canada reported June wholesale trade figures which were better than expected, with a rebound versus a weak May. This chips away at expectations of a Bank of Canada interest rate cut and probably contributed to the government of Canada five year bond yield rising to 1.33% today. That’s a far cry below the nearly 2.50% that it briefly reached last Fall but a nice rebound from 1.20% a few days ago. The table shows that wholesale trade is up 2.3% versus June of 2018.

August 21, 2019

Markets were up on Wednesday with the S&P 500 up 0.8% and Toronto up 0.6%.

Shopify was up another 4.0%.

Lululemon was up 2.0%,

Toll Brothers fell 4.5% despite reporting Q3 earnings that beat expectations. They also increased their full year guidance modestly and indicated they have increased their home prices in about half of their communities. Q3 earnings and sales were down versus last year but that was expected. Listening to the conference call and looking at the numbers my sense was that the decline of recent quarters is now leveling off. The stock apparently declined due to some concern about lower sales in California. Possibly, the stock will recover a bit when the analysts have updated their reports based on today’s conference call. Or not.

In Alberta, the news is that the Trans Mountain pipeline construction will resume in about 30 days. Hopefully this will provide some boost in employment and confidence for Alberta.

Rate reset preferred shares fell again today despite a large increase in the five year Canada bond yield (which was due to the 2.0% inflation which lowered expectations for Bank of Canada interest rate cuts). Perhaps rate reset preferred share owners are reaching capitulation. Selling even when rate rose as they have been so badly burned over and over. Possibly selling at the bottom? Showing the courage of my convictions I added a bit to my ENB.PF.A position today.

August 20, 2019

Tuesday was a moderately negative day in the markets.

The S&P 500 was down 0.6% and Toronto was down 0.5%.

Shopify was up 3.6% to $499 and traded above $500 today.

Toll Brothers was up 1.4% to $36.91. It then reported Q3 earnings after the close of $1.00 per share, beating expectations of 83 cents. As expected earnings and sales are running below the level of last year. The company indicated that they are off to a good start in Q4. It’s not clear how the market will react. I would suspect not a whole lot of reaction. The comp[any believes its shares are under-valued and bought back almost 4 million shares during the latest quarter at an average of $35.74. That’s a reduction of 2.7% in the share count.

The Enbridge rate reset preferred share ENB.PF.A is down to $13.86. I thought it was attractive in my last update at the end of June at $15.81. But since then, the FED has lowered interest rates and in general interest rates around the world are lower and talk of negative yields is pervasive. The 5 year Canada bond yield at my last update was 1.38%. Today it is down to 1.20% and it seems it is expected to go lower. At 1.20% the ENB.PF.A would reset on December 1 to (1.20 + 2.66) 3.86% of $25 paying 96.7 cents per year. That would be a yield of 6.96% of the current price of $13.86. I would view that as quite attractive in a world that pays 1.20% on a five year government bond and where the yields on high interest savings accounts and GICs are expected to head lower. And if the Canada Bond yield is way down at 0.50% on December 1, then ENB.PF.A will reset to pay 79 cents or 5.7% on the current price. Assuming there is not much chance that Enbridge will ever fail to pay the dividend it appears that the market is either pricing in an even lower reset yield or “feels” that 5.7% to 6.96% is insufficient. Investors have been continuously and repeatedly “burned” by these rate reset shares. At some point (now?) investors will have driven them down in price to the point where they offer very good value.

August 19, 2019

Monday was yet another non-boring day in the markets as the S&P 500 was up 1.2% and Toronto was up 1.0%.

Canadian Western Bank was up 5.0% although there was no news from the company. Linamar was up 2.5%, and Toll Brothers was up 3.5%.

The banks will begin reporting their Q3 earnings this week. There may not be much chance that the this push their prices up. Even if the report no material increase in bad loans and if they report good profits,, the markets will likely focus on fears that net interest margins will predecease and that bad loans will increase. And if either of those two has already happened in Q3 then the bank shares would decline.

I suspect Canadian Western Bank continues to do well. But if any of the big banks stumble then that could pull CWB down as well. The point being that even though CWB seems cheap, there may be too much fear in the market (regarding lower interest rates and high bad loans) for the share price to rise much even if its Q3 report is strong. A possible catalyst for CWB would be if they report good progress in their project to move to the more favorable advanced system for measuring their risk-weighted assets and if they start to indicate what the profit benefit of that will be.

Checking insider trading, I notice that Melcor has resumed buying back its little quota of 1000 shares per day. Also their CFO added 400 shares at $12.06 on Friday to hold 2000 shares in her RRSP account. These are both small buys but still nice to see.

After reporting Q2 results, Linamar is once again buying back shares. The CEO also bought shares for her children last week and one other executive added a few shares.

Toll Brothers will report earnings this week. Expectations seem rather low at 83 cents versus $1.26 last year. Hopefully they can beat this muted expectation.

August 18, 2019

Friday’s action saw the S&P 500 up 1.4% and Toronto up 0.9%. Markets are gyrating up and down mostly based on the latest word on the trade wars.

Notable gainers included CN Rail -up 1.9%, Apple – up 2.4%, FedEx – up 2.1%, TFI International – up 2.3%. Rate reset preferred shares were down once again.

August 15, 2019

On Thursday, the S&P 500 was up 0.25% while Toronto was down 0.2%.

Canadian Tire was down 2.4% to $131.47. I plan to update the report shortly. My initial impression was that its Q2 earnings report was good, but the market obviously found something not to like.

Walmart is not currently on our list. It jumped an impressive 6.1% today after posting strong earnings.

Toll Brothers will report earnings on August 20. Expectations are for 83 cents per share down from $1.26 last year. I’d like to think it will be above 83 cents. For one thing the share count is down by 3% which should help. The U.S. new home builder market has been weak but Toll Brothers is in a strong position with an excellent land position.

Also, later this month the banks including CWB will report. They should do well but if they report that net interest margins are about to be squeezed down again by low interest rates then that would be a negative for them. Higher loan losses are also a possibility. So far, those predicting higher loan losses have mostly been wrong.

WSP Global updated August 15, 2019

WSP Global is updated and rated Buy at $69.82. It has a great history of growth and trades at a reasonable although not particularly compelling valuation.

Compared to Stantec, WSP trades at a higher multiple to trailing earnings and book value. But it has been growing faster. And whereas Stantec is trying to emerge from several years of problems (notably cost overruns on its now disposed of construction services division that it had acquired in an acquisition), WSP has not reported any stumbles despite its tremendous growth by acquisition. Stantec also disappointed analysts in the latest quarter by reporting that it had been slower than planned in reducing admin costs and in admitting that it had not been closely managing such costs for some years.

Stantec, perhaps offers some added upside if it has now put its recent problems behind it and can return to the good graces of analysts.

For historic reasons, (i.e. I have been following Stantec for 20 years) I own Stantec but not WSP. If I were investing today, I would buy some of each rather than only Stantec.

August 14, 2019

On Wednesday, the S&P 500 was down 2.9% and Toronto was down 1.9%.

Market sentiment seems to be on a hair trigger with stocks rising or falling materially each day depending if news developments are considered bad or good.

The fact is that being invested in equities is never for the faint of heart.

Some of the more notable decliners include: FedEx – down 3.4%, Wells Fargo (no longer on our list) – down 4.3%, Bank of America (also no longer on our list) – down 4.7%, Amazon -down 3.4%, Visa and Amex both down 2.9%, Costco -down 2.9%

When markets decline it is never clear if it is a buying opportunity or if it is just the beginning of a larger drop. If I were “sitting on” a lot of cash I would be tempted to add to positions. But I would also try to remember that there should be no hurry to deploy cash.

Rate reset preferred shares were pounded down again. I look at the Enbridge ENB.PF.A. It’s down to $14.37. It will reset on December 1 and at the current 5 year Canada bond rate of 1.19%, the dividend would drop from $1.10 to 96 cents. That’s a yield of 6.7% at the current price. Assuming the Canada bond yield remains 1.19% on December 1, 2019 then over the next 5 years the Canada bond would pay out $11.90 per year per $1000 invested or a total of $59.50 over five years. But then it would mature at the $1000 face value. ENB.PF.A barring insolvency of Enbridge would pay out $67 per year per $1000 invested at $14.37 for a total of $335 over the five years. But what would ENB.PF.A be trading at in five years? It seems to me that if the Canada bond yield were still very low then ENB.PF.A should be trading higher since its dividend of say 96 cents per year would be attractive. And if rates rise then the reset yield on ENB.PF.A would rise. And ENB.PF.A would have to fall by about 27% at the end of five years before it would under perform a 1.19% Canada bond.

The market repeatedly teaches that there are no guarantees on the value of rate reset shares. But If I had cash and was looking for yield I would consider a including a number of rate reset shares.

CWB.PR.D trading at $25.40 has four and a half years to go paying $1.50 per year or 5.9% and then will reset at a hefty 4.04% above the five year Canada bond or it may be called in at $25 at that time. Either way, that seems attractive. Buying ENB.PF.A today involves the risk of where the Canada bond yield will be on December 1. And with negative rates in the news it certainly could be lower than the current 1.19%.

Overall, a small group of rate reset preferred shares could be selected that would yield over 6% and with the reset dates somewhat spread out over time. In our world of extremely low interest rates, 6% is becoming very attractive.

With prices down today, I bought a very small amount of lululemon. I don’t rate it a buy and will wait for a lower price before adding to this small position. I bought it partly because my family shops there.

The latest rail car loading reports out today, are similar to last week. Canada still running slightly above 2018 levels. The U.S. running above 2016 levels but noticeably below 2018 and even below 2017.

The CEO of Melcor Developments, Darin Rayburn bought 1000 shares today at $12.31. It’s a small purchase but it is with his own money and I would consider it to be a small positive signal. Note too, that lower interest rates tend to push up the market value of commercial rental buildings. The impact on the value of Melcor’s lands should also be positive with lower interest rates but those values are affected by many other factors including the state of the economy and the growth of the communities where it owns land.

August 13, 2019

Markets rebounded on Tuesday after it was announced that the new 10% September 1 U.S. tariff on $300 billion of Chinese imports would be delayed until December for most consumer goods.

The S&P 500 was up 1.5% and Toronto was up 0.7%.

Linamar recovered 4.4%. Apple was up 4.2%.

Most rate reset preferred shares were up somewhat as the 5 year Canada bond yield rose from 1.20% to 1.25%.

August 12, 2019

Monday was a negative day in the markets with the S&P 500 down 1.2% and Toronto down 0.6%.

Rate reset preferred shares were mostly particularly hard hit. This was due to the plunge in the five year government of Canada bond yield to 1.20%. It had started this year around 2.0% and had been as high as 2.5% in the Fall of 2018.

For example ENB.PF.A fell to $14.73. It will reset on December 1 at the Canada five year yield plus 266 basis points. If the Canada bond yield is 1.20% that would mean a reset yield of just 3.86%. But that would be 3.86% of $25 or 96.5 cents. That would make for a yield of 6.55% on the $14.73 price which is actually a very good yield in a world of 1.2% five year bonds. If the five year bond falls all the way to 0.50% on December 1 then this pref would reset to pay just 79 cents per year or 5.36% on the current price. That’s also not a bad yield.

ENB.PF.A has been a terrible investment over its life based on its market price decline. Investors, many times bitten, are now many times shy.

Various rate reset preferred shares have to be looked at on their own merits. Some have far higher reset spreads than this Enbridge pref. Newer issues and those that have recently reset have close to five years before they will reset again.

At the moment there are short term high interest accounts that pay 1.6% to 3.0% or more. These have no risk of a market decline and may be more attractive than some of the rate reset shares. But given the lower bond yields, I would expect the rates paid on such “high interest” accounts to head lower, perhaps much lower, very shortly.

Very low and even sometimes negative yields on government bonds are indicative of serious problems in the global financial system.

On another topic, CanFor is being taken private at a premium of about 70% to the recent stock price. This illustrates that stocks can trade quite a bit lower than the fair value that would be paid to acquire the entire company.

August 11, 2019

On Friday, the S&P 500 was down 0.7% and Toronto was down 0.4%.

Linamar was hammered down 8.1% (see update). I will be interested to see if the analysts lower their forward earnings estimates. According to Yahoo Finance, the forward P/E is just 4.4.

AutoCanada recovered 11.0% as it reported improved sales and EBITDA. The results are still far from good, but it is an improvement.

Linamar updated August 11, 2019

Linamar is updated and remains rated Strong Buy, now at $37.92. It is in a period of declining earnings. But its valuation seems extremely low in relation to earnings and book value. The near-term stock price is dependent on how trade tensions evolve.

Given the lower price , I would expect management to probably increase the volume of share buy backs. They have been buying back a modest amount of shares in recent months. The dividend is very small. The company is well positioned to increase the dividend if it wanted to but there has been no indication that they plan to. They have a relatively modest debt level and are paying that down. This leaves them well positioned to easily survive the industry slow-down and to make whatever investments they deem appropriate.

Stantec updated August 10, 2019

Stantec is updated and rated Buy at Canadian $28.50 and U.S. $21.56.

The market was disappointed with its Q2 earnings report that featured good revenue growth but also a decline in adjusted earnings of 9.5%. The company blamed this on a delay in implementing its planned cuts to admin costs. Overall, their explanation was confusing and not well received. It appears that the company is admitting poor management of its admin costs going back some years. But they indicate that more decisive action has been taken as of Q3. Overall, it appears that Stantec has resumed growing earnings after several years of dealing with problems in its now divested construction services division. Unless there is a material slow down in the world economy, Stantec should report higher earnings over the next year .

August 9, 2019

Never a dull day in the markets it seems…

S&P 500 was up 1.9% and Toronto was up 0.9%.

Shopify was up 4.3%.

Boston Pizza Royalties Income Fund reported earnings before the open. Same-store sales subject to the franchise fee (excludes alcohol) were basically flat (down 0.3%). Distributable cash per unit was basically flat (up 0.1% helped out by some unit buy backs in December). Trailing 12 month payout ratio remains of concern at 103.3%. So, basically they are treading water. They indicate optimism that same-store sales can grow with advertising and menu price increases. I worry that they may have to cut the distribution a little. The yield at almost 8% remains attractive especially as interest rates are falling once again.

Stantec was down 4.7% for the reasons I mentioned yesterday.

Canadian Tire reported earnings before the open with normalized earnings per share up 13.7% and same-store sales growth of a respectable 2.2%. … and the stock fell 4.8%. The reason for the decline was likely their announcement that they will acquire the 65 store chain Party City for $174 million. I don’t know why the market would react so negatively to this. Canadian Tire now has a very good history of acquiring other chains successfully (Primarily Mark’s and the former Forzani sports stores). If I had sufficient cash, I would have bought more Canadian Tire shares today. I did in fact buy a few in an account I manage for a relative.

AutoCanada reported earnings after the close. They tout a lot of improvements but there was still a net loss and so we shall see how the analysts and the market react tomorrow.

Also, after the close, Linamar reported earnings. They tout good cash flow and improved market share but earnings (not unexpectedly) are down versus last year but still nicely positive. Again, we shall see how the market reacts.

Restaurant Brands announced that a major share holder, (presumably its controlling owner) will sell 20 million shares in a public offering. i suspect that this means the share price will decline on Friday.

I plan to go through the various earnings reports and update several of the reports in the next week or so.

August 7, 2019

On Wednesday, the S&P 500 was down most of the day but ended the day up 0.1%. Toronto was up 0.7%.

Restaurant Brands was strong with a 3.6% gain in Toronto and 3.4% in New York.

Rate reset shares were lower due to the declining 5 year Canada bond yield rate.

CRH Medical was up 3.8%.

After the close, Stantec reported earnings that were lower than expected. They blamed it on higher than anticipated admin costs saying that planned staff reductions in that area were delayed. But it was not clear to me why that made the admin costs (as a percentage of sales) higher than last year as opposed to simply higher than budgeted. Analysts may be upset that the company did not achieve its planned cost reductions. While their adjusted earnings per share at 50 cents would still amount to $2.00 for a P/E of 15, which is not bad, and while revenues were up, the market will likely “punish” the stock tomorrow for the disappointment.

Also after the close, Costco reported yet another good month of comparable same-store sales – up 5.1% in July. Slightly lower than recent results but still very good.

I believe Boston Pizza Royalties Income Fund reports tomorrow. I have said a number of times that I am worried that they might have to cut the distribution unless same-store sales grow.

August 6, 2019

On Tuesday, the S&P 500 had a partial recovery from yesterday’s losses and was up 1.3%. Toronto, playing catch-up, was down 0.75%.

Some stock movements of note included: Canadian Tire- down 2.1%, TFI International – down 2.6% (I was happy to grab a few more shares of this excellent company with the decline), Linamar -down 3.2% (which seems awfully cheap but it gets hit with trade war fears as well as concerns about slower auto sales), Melcor down 3.2%.

It seems that the market has a hard time dealing with cyclic stocks like Melcor and Linamar. The fact that Melcor’s book value is some 150% higher than the stock price and that those assets are solid seems to count for nothing at this time.

August 5, 2019

On Monday, Canadian markets were closed while the S&P 500 declined 3.0% due to Trump’s escalating trade war with China. A 3% decline in the U.S. markets is not a huge deal considering all the recent gains. Obviously, the declines could continue. The Canada market will almost certainly play catch-up to the downside tomorrow. Market declines always have a silver lining in terms of improved buying opportunities.

Some of the decliners today included: Apple -down 5.2%. FedEx down 4.0%. Toll Brothers – down 2.7%, and Amazon – down 3.2%.

TFI International updated August 5, 2019

TFI International is updated and rated (higher) Buy at $39.69. Based on valuation I would have rated the company a Strong Buy. But the company does see some softness in the outlook. I believe a rating of (higher) Buy is conservative. I just listened to the conference call and was once again extremely impressed with the CEO and his constant focus on profitability and cost control. I plan to add to my position on Tuesday (and the price will likely be down given the U.S. market decline today). I would add even more if I had the cash available.

August 4, 2019

Markets fell on Friday probably due to Trump’s escalating trade war with China and disappointment that the FED did not promise more interest rate cuts.

The S&P 500 was down 0.7% and Toronto was down 0.6%.

Restaurant Brands was one of the few gainers. It was up 6.1% after releasing Q2 earnings that were better than expected. See our update on that company.

Melcor was down 4.2% to $12.65 after releasing (as expected) weak Q2 earnings but after also (unexpectedly) cutting the dividend from 13 cents to 12 cents. The number of shares traded was low as usual at less than 9,000 shares. The daily average is 3,500 shares which would represent an annual turnover of 2% which is incredibly low. Book value per share is $31.76. Despite a very soft market for home building lots (which is expected to continue) they did manage to sell 106 lots in Alberta Q2. This was down from 144 in Q2 last year. Their investment properties remains stable and brings in reliable income and development of new investment property buildings is continuing at a good pace. These two divisions allow the company to remain profitable and cash-flow positive despite the much softer housing market. There were no lot sales in the U.S. where lot sales tend to be done in large infrequent batches. There will likely be some U.S. lot sales in either Q3 or Q4.

Melcor is a discounted “asset play” in that its shares trade at 40% of book value and the assets are solid consisting largely of land (which unfortunately generates no income until sold) and the income investment properties. It seems that the controlling family ownership prevents other companies from taking over Melcor in order to basically buy these hard assets at a huge discount. The shares may continue to languish well below book value until and unless earnings improve sharply. Given this discount, I could not resist adding a few more shares to my position although I already have really too much exposure to this company. We cannot count on Melcor’s management to do anything to to boost the share price such as by doing a substantial share buy back. They are very conservative and will likely hang onto cash and wait for earnings to improve. Perhaps progress on the pipeline front will result in a resumption of stronger housing demand. Despite the softer economy, Alberta’s population increased by 1.7% or about 75,000 people in Q2 mostly due to births far exceeding deaths. In Q1 the net immigration was 10,000 people.

The next update will be for TFI International. Its stock price has fallen despite strong earnings growth. Trading at a P/E of 10 and it has been growing strongly. I will be adding to my position.

Starbucks versus Restaurant Brands August 3, 2019

Having recently looked in detail at Starbucks and at Restaurant Brands, I wanted to look at some of the big similarities and differences between the two businesses.

Both are in the quick-service food and beverage industry with tens of thousands of locations world wide. There are almost 31,000 Starbucks while Restaurant Brands has over 26,000 locations of which 69% are Burger Kings, 19% Tim Hortons and 12% Popeyes. Starbucks of course is mainly selling coffee as sales of a typical store are 74% beverage and just 20% food and 6% other.

Starbucks concentrates almost exclusively on its one brand (its other brands include Teavana and Seattle’s Best Coffee). Restaurant Brands has its three current brands and could acquire other restaurant brands over time. Therefore Restaurant Brands may grow somewhat by acquisition while Starbucks will grow almost exclusively organically. The Starbucks brand is known and recognized globally. Burger King is well known but is not close to the global leading brand that Starbucks is. Tim Hortons is not well known outside of Canada and some parts of the U.S. Popeyes is not well known outside of the U.S.

Both companies plan to continue to expand internationally by seeking partners or master franchise arrangements that involve hundreds or even a thousand or more locations.

Their franchise models differ greatly. Restaurant Brands has almost no company-operated locations whereas half of the Starbucks are company owned (and the vast majority in Canada are company-owned). For Restaurant Brands many or most locations in North America are owned by people who own just one or a few locations. Some Burger Kings are owned in very large groups but most are not. Outside of North America, Restaurant Brands partners with with companies that own many locations perhaps even all the locations in a given country. Starbucks has very few one-off type owners in North America. It is not a traditional franchise model. Instead they partner with companies that own many locations. And outside of North America that is even more the case.

Starbucks leases virtually all of its store locations and does not own them. In contrast, many Burger King and most Tim Hortons locations are owned by the company and the franchisees pay lease rents to the company.

Restaurant Brands in the case of Tim Hortons (but not Burger King or Popeyes) acts as wholesaler in selling coffee and many supplies and even equipment to franchisees. This does not appear to be the case for Starbucks.

Geographically, Restaurant Brands gets a high 56% of its revenue from Canada. This is due to collecting rent and providing wholesale supplies to Tim Hortons which results in far more revenue per location for the company as compared to Burger King and and Popeyes locations. 33% of its revenue is from the U.S.A. and the remaining 11% is spread across about 100 countries. In contrast, Canada would represent probably less than 10% of revenue for Starbucks and the total for the U.S.A alone is 70% with the other 30% coming from all other countries combines.

The balance sheet and debt leverage of the two companies is quite different. Starbucks has grown organically and most of what acquisitions it has made involved buying back non-company-operated stores. As a result purchased goodwill and similar intangibles represents “only” 25% of its assets. Restaurant Brands purchased its three brands with the result that purchased goodwill and similar intangibles represents 75% of its assets. Both companies are worth far more than the book value of assets. Debt finances 57% of the assets of Restaurant Brands while Starbucks appears similar at 52%. And Starbucks now has negative book equity due to share buy backs. But when it is considered that Restaurant Brands has vastly more goodwill and intangibles then Starbucks is far less leveraged in terms of debt versus market value. Restaurant Brands’ debt is 25% of the value of its enterprise value (book debt plus market value of equity). Starbucks’ debt is only 9% of its enterprise value (book value of debt plus equity). In terms of interest coverage ratios, Starbucks is far stronger.

Starbucks has been buying back vast amounts of its shares – partly because it came into a wind-fall of $7 billion by selling distribution rights for grocery stores product sales to Nestle but also by recently using large amounts of debt to fund buybacks. Restaurant Brands bought back only relatively few shares in recent quarters.

The above information may or may not be useful in evaluating whether the shares of the two companies are attractively priced but it does provide a description and comparison of the two.

Restaurant Brands (QSR) Updated August 3, 2019

Restaurant Brands is updated and remains rated Weak Buy / Hold now at U.S. 77.22 or Canadian $101.02.

This was only added to our list in late July but is now updated for its just released Q2 earnings report. Q2 has strong same-store sales of 3.6% at Burger King and 3.0% at the far smaller Popeyes chain. But Tim Hortons was almost flat at 0.5%. Due mostly to added Burger King locations, revenues per share were up 5.4% and earnings per share were up 6.9%. These are god numbers but not that great given the trailing P/E ratio of 32. The stock could continue to do well driven by international expansion. But it is expensive and so I would prefer to wait and see if there is a pull-back before adding to my small position in this stock.

August 1, 2019

Markets fell on Thursday after Trump escalated his trade war with China announcing new 10% tariffs on most remaining Chinese goods starting September 1. This will be for most of the goods that he has not already imposed tariffs on.

Stocks that fell on this news included: FedEx – down 4.2%, Linamar – down 4.25%, and Apple – down 2.2%.

Canadian Western Bank was down 3.6%. This may have been related to lower oil prices. Banking has remained very profitable but the market apparently fears loan losses.

TFI International was down 3.3%.

In better news, CRH Medical was up 12% in Toronto, although only 5% in the U.S.

After the close, Melcor released Q2 earnings. As expected, revenues and earnings were weak. But they did manage to report a profit and funds from operations per share were higher than last year although down versus 2017. Annoyingly, they cut the dividend by 1 cent to 12 cents per quarter. They have had a history of adjusting the dividend down in lean years. Melcor noted that its investment properties business continues to grow as does its property development division. They expressed confidence that they can deal with the weaker lot sales but they also indicated that residential building lot sales in Canada will remain weak until higher job growth returns to Alberta. It seems to me that the stock price has already more than reflected this scenario.

Desrosiers automotive reported vehicle sales for July. They were down 1.0% which is actually not bad considering that Q1 was down 4.1% and Q2 was down 6.4%. Fiat Chrysler was up 19% which is the first increase after at least a year of significant declines for that brand. This report is good news for AutoCanada given its heavy concentration of Fiat Chrysler dealers. Perhaps it will be able to report that Q3 is starting off well. But I expect its Q2 report to contain more bad news.

Starbucks Report updated August 1, 2019

Our report on Starbucks is updated and rated Weak Buy / Hold at $95.38. Normally, I would not rate a mature company like this as high as even hold give the P/E ratio of 35. But low and going lower interest rates do support high P/E ratios. And Starbucks is one of the best-known brands in the world. The company can license the brand in new countries with its partner making the investment and Starbucks simply collecting a licence fee. Also, it should report earnings growth of perhaps 15% in its next quarter due in part to a large reduction in the share count. And it may continue to buy back shares aggressively.

This stock is up a surprising 81% since it was added to this site rated Buy on August 24, 2018. Earnings growth supported some of that increase but much of it came from a large increase in the P/E multiple that the market was willing to pay. It is definitely not the “Buy” that it was last August.


July 31, 2019

On Wednesday, the S&P 500 fell 1.1% after the FED gave the markets a 25 basis point interet rate cut but apparently did no promise firmly enough to do more of the same in future. Toronto was down 0.4%.

Canadian Western bank was up 3.9% after lenders Equitable Bank and Home Capital reported strong earnings in Q2. CWB has an alternative mortgage division which is presumably also doing well. CWB and the large banks reached the end of their Q3s today and will report probably toward the end of August.

AutoCanada rebounded 4.1%.

Penny stock Ceapro was up 8.5% to 44.5 cents.

After the close, CRH Medical reported Q2 earnings. The report looked good with higher revenues and profits. However the EBITDA margin was down somewhat so the market may focus on that rather than the good aspects of the report.

July 30, 2019

Tuesday was a moderately negative day with the S&P 500 down 0.3% and Toronto down 0.2%.

Most stocks that I follow were down a little.

Toll Brothers however was up 2.1%. I don’t follow lumber prices but I saw where they are down. That should be good for Toll brother’s profit margin. Their next earnings report will be late August. While many stocks are “priced for perfection”, Toll Brothers appears to be priced for something closer to a disaster. It is trading at 8.6 times forward estimated earnings and at 1.07 times book value.

The Melcor REIT released earnings after the close. It was about as expected with revenues stable but adjusted funds from operations down 4% year over year but up 3% versus Q1. The occupancy rate is 89%.

Tomorrow, the market will focus on the expected FED interest rate cut.

July 29, 2019

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

TFI International was up 4.1% probably because analysts further digested its Q2 results from last week and liked what they saw.

AutoCanada was down another 3.1% to $8.82. With the recent weakness it almost seems as if some bad news about the upcoming Q2 release has leaked out. Then, after the close AutoCanda announced that its creditors have agreed that its lenders have agreed that its maximum permitted funded debt to EBITDA ratio can stay at the temporarily higher limit of 4.5 for another nine months after which the maximum gors back down to 4.0 times. It’s hard to interpret the significance of this. To the extent that AutoCanada has not already maxed out its credit lines then this means it has a bit more borrowing room. Does it imply a sort of show of faith by creditors? I don’t know that it does since they may not have had a lot of choice. It could be seen as bad nes in the sense that it means that AutoCanada’s EBITDA is not going to increase fast enough to bring the ratio of Debt to EBITDA down to 4.0 very soon. Overall, given the recent problems at AutoCanada it would probably be safer to assume that this is not good news. At best it can probably be considered neutral news.

Meanwhile, I am working on the update for Starbucks. It is interesting to see the different model versus Restaurant Brands which I will elaborate on. Starbucks looks quite expensive. It had a burst of increased traffic per store (strangely in all three of Americas, Europe and China / Pacific) in its latest quarter after a number of quarters of little traffic growth (but some ticket size growth -possibly related to inflation). I am not sure if the market expects this traffic growth per store to continue. Or the optimism may be based on accelerated international growth.

July 28, 2019

Markets were higher on Friday as the S&P 500 rose 0.7% and Toronto rose 0.3%.

Aecon jumped 9.8% after reporting earnings. This company takes on risky fixed price construction contracts but has done well. That’s in sharp contrast to SNC Lavalin’s recent experience and Stantec also struggled when it got into that business through a large acquisition a few years ago and ended up divesting that business.

Starbucks surged 8.9% to $99.11 after releasing its latest earnings. This will be our next update. This stock is up a remarkable 88% since it was added to this site last August rated Buy at $52.75. I certainly never expected such a large established company to jump 88% in a year. The forward P/E ratio is 32 and the trailing year P/E is 35. Those levels have normally been considered unsustainable for the long term. But with interest rates on U.S. 10 year government bonds at about 2% and potentially set to fall and/or not rise for the foreseeable future, there is an argument that a stable earning company with some growth is not that expensive at a P/E around 30. And Costco as an example has maintained a P/E around 30 and higher for quite some time. Still, I think it is risky to assume that the P/E ratio will stay so high. I will be updating the report shortly and look forward to reading Starbucks’ financial reports to try to understand what could justify this stock having doubled in price since one year ago today.

TFI International was up 3.5% after releasing earnings. In a most unusual move for Canadian companies, they have not yet posted their full earnings release with management discussion and financials. I plan to update our report soon when that information is released.

AutoCanada was down 3.2% to $9.10. Hopefully this is not due to some people being aware of what their Q2 report might contain. I have discussed the many problems that this disappointing company is dealing with. My hope is the the new CEO, Paul Antony, who took over last Summer will be able to show that better times are ahead. I do not expect that Q2 will have returned to acceptable profitability and it could very well be a loss and more write-offs.

The market this week is eagerly expecting a rate cut from the FED and (the market hopes) promises of more cuts to come. In addition there will be earnings reports and Trumps latest tweets for the market to react to.

Restaurant Brands International added to list July 26, 2019

Restaurant Brands which owns Tim Hortons and Burger King and Popeyes and trades in Canada and the U.S. under symbol QSR is added to our list. This company definitely has reliable cash flows and will likely continue to grow. But it is also quite expensive with a P/E ratio of about 31. And it is highly debt leveraged. On a valuation basis (in isolation) it should be rated Sell. But given its growth plans it may continue to do well. I may be stretching things a bit to rate it as high as Weak Buy / Hold but that is the initial rating. I am buying a very small initial position. This company along with many others trading at high P/Es will be vulnerable in a stock market correction.

Owning at least a few shares of Restaurant Brands may be of particular interest to those who are frequent customers of one or more of their brands.

The report contains a lot of detail about the company. 

I am buying in the U.S. portion of an RRSP account partly because the dividend is paid in U.S. dollars.

If buying in a taxable account note that although it is registered as a Canadian company it is more of a U.S. company in substance and most of its growth is outside of Canada. As far as currency exposure, that does not really change at all whether you buy in Canadian dollars or in U.S. dollars (other than you can avoid the fees to translate the dividend into Canadian dollars each quarter). The company appears to indicate that Canadians are not subject to a withholding tax on the dividend even if they buy the shares on the New York Stock Exchange in a U.S. account.

The dividend is an eligible dividend for Canadian tax purposes (qualifies for the dividend tax credit).


July 25, 2019

Markets took a little rest from their gains on Thursday as the S&P 500 declined 0.5% and Toronto was down 0.7%.

AutoCanada was down the most as far as the stocks on my list – down 3.3%. Nothing else declined by a notable amount.

After the close, TFI International reported Q2 earnings. Revenues were up only 2% but adjusted net income was up 19%. And they announced authorization to slightly expand their large share repurchase program from 6 million shares to 7 million. They are serious about this and have already repurchased 5.6 million shares in the past 9 months at an average cost of $39. I would expect TFI to be higher on Friday based on this earnings report.

Aecon also reported Q2 results showing strong growth.

July 24, 2019

On Wednesday, the S&P 500 was up 0.5% and Toronto was up 0.2%.

CN Rail was up 3.3% after releasing a strong earnings report.

lululemon was up 1.7%

Aecon was up 1.5% possibly benefiting from SNC getting out of the fixed price business which Aecon seems to do well on.

Canadian Western Bank was up 1.7%.

Couche-Tard was up 1.0% after announcing it will acquire 10% of a cannabis retailer for a $26 million investment. The transaction is relatively small for Couche-Tard and is somewhat complicated. It is reminiscent of some of Buffett’s acquisitions in that it is in the form of convertible debentures and options such that Couche-Tard will initially earn 8% on its investment and Couche-Tard could end up owning 50.1% of the company if all options are ultimately exercised. We may see more reaction in the stock tomorrow as analysts digest the move.

Constellation Software was up 2.8%.

Going the other way, BHP was down 4.1%

I will be adding Restaurant Brands to our list very soon. However, I am not sure it merits a buy rating. It trades at a high price earnings multiple and is highly debt leveraged. On the other hand it has stable income streams and is growing. Since so may Canadians are Tim Hortons customers and since it is so obviously busy, its owner, Restaurant Brands, seems like a reasonable company to take a look at it. Actually I first had Tim Hortons on this site back in 2004 and into 2006 by having Wendy’s which then owned it and it was a good stock to own. After that we had Tim Hortons on the site when it traded stand alone. Tim Hortons was ultimately up over the period it was on this site but it was volatile.

July 23, 2019

On Tuesday, the S&P 500 was up 0.7% and Toronto was up 0.3%.

Linamar rebounded 3.6% probably due to potential progress on trade talks between China and the U.S.

FedEx was up 2.5%.

SNC Lavalin got hammered down another 9.6% as investors bail. Presumably suitors will be lining up now to see what businesses SNC is willing to sell at fire sale prices. I believe they are scheduled to close the sale of a portion of their highway 407 Toll road. That might provide some support to the share price. In any case the stock remains highly speculative. So far, the woes at SNC have not dragged down the price of Stantec or WSP.

CRH Medical was down 2.6% to $3.46 in Toronto. On Monday it had announced its latest small acquisition which to my mind is more evidence that their growth-by-acquisition strategy remains intact. The company continues to be active buying back shares. Purchases in June were at prices from about $3.60 to $3.93. This suggests confidence on the part of management that the shares are under-valued. It also suggests that the company has sufficient cash adn cash flows to make these purchases.

CN reported record profits for Q2. CN has been a consistent winner for many years. They keep moving more freight without having to add to their route miles. They have been efficient at trimming costs. Other than sometimes looking expensive I don’t think I have had a bad thing to say about this company in quite some years or almost ever.

Statistics Canada reported sales at food service and drinking places for May. They were strong, rising 4.7% year over year. Prices were up 2.5% suggesting that volume was up about 2.2%. Average same-store sales growth would be somewhat lower as the number of restaurants in Canada presumably increased in the past year. I worry that Boston Pizza has lagged the full service restaurant industry for (from memory) about the last year. I understand that Pizza chains have lagged but Boston Pizza is a lot more than Pizza. BP needs to report increased same-store sales soon or they are going to have to make a small cut to the distribution as they are paying out around 103% of distributable cash per unit. As of Q1 they said growth in Ontario was strong but Alberta was lagging. Alberta probably continued to lag in Q2. For one thing Alberta (at least around Edmonton) had way more rainy days in June than is typical and that will not be good for the patio business. (July has been just as bad but that is Q3). Hopefully the Raptors run gave a boost in May and early June. It’s never easy to predict what will happen. As mentioned, I reduced my position recently. You may have seen they have been doing some T.V. advertising. They always advertise but lately it was in places other than television. At this point I would be satisfied if same-store sales were at least not negative and if they leave the distribution unchanged.

July 22, 2019

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

Nothing good to report on most of the stocks on our list. Rate reset shares were generally down today as the 5 year government of Canada bond yield rate has slumped down to 1.4%. At that rate most rate reset preferred shares would reset at unattractively low rates based on their par values of $25. Therefore they are mostly trading well below that. I explained some of the reasons why back in March.

Toll Brothers was down 1.8%. My understanding is that the home building industry in the U.S. is suffering from labour shortages and a shortage of building lots. In a way those seem like the problems of a robust market rather than a weak one. Toll Brothers has a plentiful supply of building lots but the share price does not seem to get any credit for that.

Apple was up 2.3%.

SNC Lavalin was in the news today and tumbled 6.7% as it announced a huge writeoff and that it will attempt to exit certain problematic lines of business. SNC has never been on our list but I did mention it a few times lately and that I had bought a small position as a speculation. Quite possibly that was a mistake. It has been said that its portion of highway 407 alone was worth approximately the share price with all the rest thrown in for nothing. That may or may not be true.

SNC is now writing off $1.9 billion in goodwill. They describe this as non-cash. true, but unfortunately it was $1.9 billion in cash (or shares) that they paid to purchase that goodwill at some point in the past. This is evidence of very poor management. They either over-paid for that business or were unable to manage it competently or some combination of the two.

SNC is going to winddown its “lump sum turnkey projects” business. Apparently it has been losing money on these and will not even attempt to sell the business. I believe Aecon is at least partly in that sort of business. I guess though that Aecon would not be willing to take on their backlog in this area unless maybe SNC paid the likes of Aecon to take it over. Sad. And sad to think that big shot executives were likely paid very well indeed to mismanage this business.

SNC is also apparently going to try to sell all or a portion its consulting engineering business in the areas of resources (oil and gas, mining and metallurgy). This could benefit the likes of Stantec and WSP who might find bargains feasting on the carcass here. On the other hand consulting engineering service businesses being sold at distress prices could put downward pressure on the value of Stantec and WSP.

Overall, I can’t say if SNC is now trading for less than the value of its 407 toll road. It may well be trading at a discount to its value but I don’t know. Others have argued that this is the case. Clearly, SNC’s stock remains highly speculative.

Also regarding rate reset preferrred shares, Royal Bank announced that it will NOT be redeeming its series BB rate reset preferred shares (which trade as RY.PR.H) when they reach their 5 year reset date next month on August 24th. This is no surprise. The shares trade at $18. RBC is paying 3.9% or $97.5 cents per year on these shares. They would have to pay probably a little over 5.0% to issue new rate reset shares today. The fact is that rate reset shares featured a bit of a heads we win, tails you lose aspect for RBC and other issuers. If the market yield on new issues were materially lower than 3.9% then RBC would redeem these and issue new shares at a lower yield. That caps the upside on these shares. Even considering issue costs and considering that in some cases the reset is up to five years away, no rate reset share is likely to ever get above about $27 and $26 is more likely. On the other hand if market yields on these shares rise well above 3.9% (which is what happened) then the market price of these shares falls and there is actually no particular bottom to how far they can fall. So the investor lost when the market yield rose and if it went the other way the upside was capped.

As explained in the link above, the “culprit” is not so much the 5 year Canada bond yield but rather the market spread demanded over and above the 5 year Canada bond. It is that spread that has sharply increased.

Having said all this, when certain rate resets like this trade at $18 to yield 5.4% and will not be reset for another five years, that seems like a pretty good yield in today’s low interest rate environment. For whatever reason, the market “demands” 5.4% on these shares while accepting a paltry 1.4% on a five year government bond. If interest rates are to stay very low for longer, it is possible that the market yield on rate reset preferreds will decline (in particular the spread over the five year Canada bond) which would lead to a capital gain on these discounted shares. Or, if the 5 year Canada bond yield rises that could also lead to a capital gain on these bonds if the spread declines.

July 21, 2019

In Friday’s session, the S&P 500 was down 0.6% while Toronto was close to unchanged although slightly down.

America Express was down 2.8% after reporting earnings. It’s earnings were strong but it forecast increasing costs for card holder rewards.

Statistics Canada reported that retail sales were down 0.1% versus May and if gasoline and auto sales were excluded then sales were down 1.0%.

While this was a negative report, I note that the year over year change for May was still positive at 1.0%. But we probably needed 2.0% to keep up with inflation. These numbers are seasonally adjusted which is an imprecise exercise. Seasonal adjustments would assume a typical seasonal difference between April and May whereas the weather this year may have been less favorable than average. I would not read anything into this report unless next month’s report confirms a negative trend.

Q2 earnings reports for Canadian companies are just starting to come in but most will arrive in the first half of August.

July 18, 2019

On Thursday, the S&P 500 was up 0.4% boosted by more indications that the FED will cut interest rates later this month.

Toronto was up 0.1%.

Most of the Canadian stocks on our list and that I otherwise monitor were down somewhat.

Couche-Tard was down 2.4% to $79.48. That is down close to the price that the company bought back stocks in early May and so perhaps they will be stepping in to buy once again. I was very tempted to add to my position at this price but I already have about 3% of my portfolio in this company. And the price could certainly go lower as there may be little reason for it to rise in the next few months unless it announces an exciting acquisition.

I notice that BNN Bloomberg was showing that Western Canadian Select fell nearly $7.00 to just under $41 today. But I don’t see any news on this. If it did fall that much today, that is another disappointment for Alberta. This price can be very volatile depending on the availability of any export capacity and on storage capacity. It is also affected by demand and it may be that U.S. Gulf refineries that receive this heavy oil were shut down due to storms.

July 17, 2019

On Wednesday, the S&P 500 was down 0.65% while Toronto was down 0.1%.

TFI International slumped 4.1%. This was likely driven by declines in other transport related stocks after U.S. railroad CSX reported lower profits and, of more concern, lower traffic in most or all all of its freight categories. It also lowered its traffic outlook for the next quarter. I suspect this was also the reason that CN Rail was down 3.0% and FedEx was down 2.8%. The latest report out today shows that U.S. rail car loads last week were lower than in 2018. This has been a clear pattern since late January. Meanwhile, Canadian rail car loads were moderately higher than 2018 which has been the pattern all year. I took advantage of the decline in TFI to add 100 shares to my position.

Toll Brothers was down 1.9%.

AutoCanada was down 2.1% to close just below $10. Apparently expectations for its Q2 results are pessimistic.

Linamar was down 2.6%

All in all, it was a not a good day for our stock picks.

July 16, 2019

On Tuesday, the S&P 500 was down 0.3% as Trump warned that he could impose further Tariffs on China and as a stronger-than-expected retail spending report cast doubt on the extent of expected FED interest rate cuts.

Toronto meanwhile was relatively unchanged with a decline of 0.05%.

Aecon was up 3.2%.

CN Rail was up 2.0% after CP Rail reported a strong Q2.

Toll Brothers was up 2.1%.

TFI International was up 2.5%

The Melcor REIT was up 2.9%.

Penny stock Ceapro was up 6.8% to 39.5 cents. It has been volatile in recent weeks.

A number of stocks on our list were down but the moves were all less than 2.0%.

The Western Canadian Select oil price has touched U.S. $50 in recent days and its recent strength is a positive indicator for Alberta.

July 15,2019

On Monday, the S&P 500 was about unchanged and Toronto as up 0.1%

The Melcor REIT announced / confirmed that its distribution will remain unchanged for the next three months and announced that it will release Q2 earnings on July 30th.

Regarding Melcor Developments I wondered if probable weak Q2 lot sales could even lead to a loss being reported in Q2. That is possible given IFRS mark-to-market accounting for building values. On the other hand if lot sales are down then the cost of lots sold will also be down. The general and admin costs of the property development division are not much over $2 million per quarter. Overall, there is probably little reason to think that Melcor will not once again post positive earnings in Q2 (particularly after adjusting for certain non-cash valuation items including building market value changes and changes related tot he market value of the minority interest in the REIT). They are a very conservative company and when earnings are down they have at times lowered the dividend. But my understanding is that they are more committed to a stable and sustainable dividend at this point. Cash flows should continue to be relatively strong as they collect for lot sales made previously (their home builders typically pay for lots when they sell and deliver a home) and as they curtail spending on new developments.

July 14, 2019

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

lululemon jumped 3.5% to $189.52. I had added it to our list less than two weeks ago at $180.86. I had been predisposed to rate it at least a Weak Buy but it seemed to rich. It’s a fantastic company but I will wait to see if there is a pull-back.

FedEx was up 3.0%.

U.S. companies will begin reporting Q2 earnings this week .

I sold a bit more of my Boston Pizza position on Friday. I had added to my position at good prices when it dipped at the end of last year and I felt it was reasonable to sell those shares to hedge my bet on this entity somewhat. This was in an RRSP account where taxes were not a concern.

I was tempted to add to my position in TFI International as it has dipped. But I will hang onto the cash for now.

Alimentation Couche-Tard updated July 12, 2019

Couche-Tard is updated and rated (lower) Buy at $84.57 (yesterday’s closing price).

What a wonderful success story this has been for Canadian investors. Remarkably, it is now the largest Canadian-based company by revenue!

Since I added it to this site in March 2005, the stock is up 1,358% or over 20% per year compounded. It is up 24% in 2019 to date. It won’t necessarily gain much in the next year and it could retreat. But over time it should continue to do well.

July 11, 2019

Thursday saw a new record close for the S&P 500 up 0.2% to 2999.9 (so rounded = 3000) and the Dow Jones closed above 27,000 for the first time. Toronto was down 0.2%.

AutoCananda was down 3.2%.

Costco was up 1.9% after reporting strong same-store sales for June.

The next update will be for Couche-Tard. It’s been a fantastic investment. But it’s expensive at this time. Selling it has generally been a mistake but it is not a compelling buy at this time.

July 11, 9:45 am eastern time

This morning I sold what amounted to 8.5% of my Boston Pizza Royalties shares. These were in an RESP account and (although this is not supposed to matter) I had a capital gain on those shares over and above the distributions received. I also may reduce my position in another account. The near 8% yield is quite attractive. But I worry that if same-store sales have not improved that a small distribution cut could be needed. That would likely push the price down several dollars as the market would likely over react. BP just announced the next distribution with no reduction. But I worry that they may be losing market share. Also the poor June (and now July) weather in Alberta will not have helped. And I understand that the weather in Ontario was not great either. Perhaps they will show a same-store sales growth in Q2 and even if not they may be able to maintain the distribution until same store sales do grow again. But I do worry about this investment. At the same time, if there was a modest cut and the market over-reacted I would want to add to my position.

July 10, 2019

U.S. markets were higher on Wednesday on indications that the FED may lower interest rates.

The S&P 500 index was up 0.45% to 2994. It poked its head above 3000 for the first time during the day.

Toronto was up 0.1%. West Texas oil is back above U.S. $60 and Western Canadian Select is at about U.S. $48. That is good news for Alberta if it lasts.

Looking at Canadian Western Bank it can be seen that the problem for long-term holders is that the price to book ratio has had some history of dropping from highs well over 2.0 down to about 1.0 and even briefly below during times when bad loans and/or lower profits are feared. That has been the case periodically since early 2016 and was also the case during the financial crisis. Meanwhile book value per diluted share has risen from $22.16 at October 31, 2015 to $28.07 now. I believe that buying CWB today at 1.06 times book value is far less risky than buying it at the 2.17 times book value that it traded at at the end of 2013. Yet the stock would have been considered much safer back then. It was trading at 2.17 times book value because investors perceived little risk of bad loans at that time and they expected strong growth in earnings to continue. P.S (added July 11) At the end of 2013 our rating was (lower) Buy. We now know it would have been a good time to sell ahead of the oil price collapse in 2014 but at the end of 2013 a sort of luke-warm rating was appropriate.

July 9, 2019

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

Amazon was up 1.8% to $1988.

AutoCanada lost more ground ans it was down 2.7% to $10.81.

Toll Brothers was down 2.2% to $36.25 and continues to lanquish despite the strong U.S. economy and its still-strong earnings. According to Yahoo Finance its forward P/E ratio is 8.6. That would imply an earnings per share decrease of 18% but would also make it still cheap. The price to book ratio is 1.07 and the assets would appear to be quite solid.

CRH Medical was down 3.7%.

Couche-Tard reported earnings after the close which were apparently disappointing. Preliminary indications are that this was mostly related to volatile fuel margins. Same-store merchandise sales growth was very strong in each of its three main geographies.

Housing starts in Canada were up strongly in June versus May. I pay most attention to single family starts and particularly in Alberta. Also, I focus on year over year changes rather than comparing to last month. Alberta single family starts were down 8%. But that is a good improvement from recent months that were down by a third. And Edmonton starts were down only 2% year over year. That is a positive since Melcor Developments is more concentrated in and near Edmonton rather than Calgary (which was down 14%). Overall the figures are encouraging but nothing to get too excited about. Multi-family starts in Alberta were up 48% year over year in June but that tends to be a volatile figure.

Yesterday, I mentioned the updates for Canadian Western Bank and for two of its rate reset preferred shares. Investors have been badly burned by rate reset shares. But some rate reset shares were issued at spreads of just 2.3% over the five year Canada bond. The two CWB shares are trading at spreads of about 4.2% higher than the 5 year Canada bond. The risk of price declines still exists but is far less than it would be at the old tighter spreads. Also these two have close to 5 years to go before they will reset and so a 5.8% yield can be locked in for a long time. The point is that rate reset preferred shares are worth considering despite the poor historical experience. I believe CWB is cheap and also worth considering.

July 8, 2019

Monday was a moderately negative day in the markets with the S&P 500 and Toronto each down 0.5%.

Shopify was up 2.65% after a positive analyst comment.

Lululemon climbed another 2.0%.

See the list of stocks on the subscriber home page for updates to Canadian Western Bank and two of its preferred shares issues.

July 7, 2019

On Friday the markets took a breather from recent gains and the S&P 500 was down 0.2% and Toronto was down 0.3%.

BHP was down 4.5% possibly linked to calls for a probe into a recent spike in iron ore prices.

Melcor Developments was down 2.4%.

Rate reset preferred shares were mostly up somewhat as strong economic data in the U.S. cast doubt on the idea that interest rates will decline.

The next update will be for Canadian Western Bank. It continues to grow its loans and deposits. There is always some risk of bad loans but overall this bank looks quite cheap.

July 4, 2019

On Thursday, while U.S. markets were closed, Toronto was up 0.1%.

AutoCanada was down 1.9%. After the close it announced it has hired a new CFO who will start on August 12. The person hired has significant experience as CFO of a number of public companies. This is good news for the company. But meanwhile Canadian June auto sales were announced and it was another bad month with a year-over-year decline of 7.2%.

The Financial Post today ran a story about Natural Gas producers facing bankruptcy as a glut of Natural gas in Alberta has prices under $1.00 and back at around 1990 levels. Apparently the (supposedly) free market government in Alberta wants to prevent the bankruptcies. The whole thing is a bit scary for the Alberta economy. The story indicated that the government hopes to see LNG plants and pipelines. But there was zero mention of how the industry managed to apparently over invest creating the glut of gas over and above the available demand. Perhaps in part it was just due to lower cost fracking operations. If so, then the higher cost producers need to be allowed to go bankrupt. That’s how (even relatively) free markets work. And there was no mention of how the Alberta and Federal government have probably failed in the area of pipeline tolls and pipeline approvals. Success, they say, has a thousand parents. Failure is an orphan.

It seems that natural gas production is a low profit industry. That’s not surprising. Most commodity businesses are low profit. Only the low-cost producers tend to make good profits. For some reason though the industry still attracts investment.

Perhaps Alberta should start touting the low cost gas to attract industry and residents. We heat our homes here very very cheaply.

July 3, 2019

Wednesday was a strong day in the markets with the S&P 500 rising 0.8% to close at a new record high and just a hair below 3000. Toronto was up 0.6%.

Among the gainers were: Couche Tard up 2.9%, Dollarama up 2.4%, Starbucks up 2.7%.

The great majority of stocks were yup today but some went the other way. CRH Medical was down 5.3%. And Linamar was down 3.3% presumably due to fears about trade tensions.

But amid trade tension fears came word today from Statistics Canada that Canadian exports were up sharply in May versus April as well as versus the year ago figures. From their Table 2 it can be seen that total exports were up an impressive 8.6% year over year. Energy exports were up 14.2% year over year and motor vehicle and parts exports were up 14.0%. Any way you look at it these numbers are impressive.

The price for Western Canadian Select was down 7% today and the discount versus WTI has widened. A wider discount provides more incentive to ship crude by rail. But with such a volatile spread and with the Alberta government recently interfering in the market by contracting for crude by rail, private shippers would find it to be a risky business. I am skeptical that the Alberta government will find anyone to take their crude by rail contracts off their hands – unless they are paid a lot to do so. Why should some companies ship a huge amount of crude by rail which would narrow the discount and benefit all producers and not just the ones that ship more oil by rail?

July 2, 2019

Tuesday was a positive day in the markets as the S&P 500 rose 0.3% and Toronto as up 0.5% despite a drop in oil prices as it played catch up due to the holiday on Monday.

Home Capital, which is not on our list but which has been mentioned from time to time, was up 4.3%. Once again it appears that predictions of gloom for Canadian lenders has proven false.

Shopify was up 4.0% as it continued to attract investor support despite nosebleed multiples.

Dollarama was up 3.7% after agreeing to buy the majority of a Latin American Dollar store chain that it has been working with for some years. This was not a surprise as Dollarama had an option to make that acquisition.

TFI International was up 2.3%.

FedEx was down 2.0%.

I have added lululemon to our list of rated stocks. It is a high margin retailer. Unfortunately, this stock is very richly priced at this time and so it is rated Weak Sell/ Hold at this time at U.S. $180.86. I would be interested in acquiring at least a few shares on any material pull back. It is a powerful brand and I continue to monitor it in the hopes that perhaps a better buying opportunity will emerge. This stock has generally looked expensive and I must admit that way back at its IPO I wrote that it was way over-valued. I was wrong on that.

We are now into the third quarter of the year and very soon the Q2 reports will start to come in. The U.S. banks will start to report by mid month while most Canadian companies will not report until some time in August.

Guest Feature: An Outsider Look at General Electric

July 2, 2019

Happy Canada Day!  Hopefully this article is a nice start to your first day back to work.  I am proud to introduce my second, but not any less important, guest writer: Mark Letchumanan.  Today’s post comes almost 4 months after Mark first submitted to me this writing on GE’s new CEO.  Fortunately, Mark’s words are timeless.  I hope you find as much value from his insight as I did.

Read more

July 1, 2019

On Monday, the S&P 500 was up 0.8% to a new record closing high of 2964. Toronto was closed and had risen 0.5% on Friday.

Notable gains included: CN rail up 2.2% on Monday in U.S. trading, CRH Medical up 2.9% on Friday and Linamar, up 1.7% on Friday.

Lower income taxes on earnings taxed in Alberta kicked in today with the Alberta corporate tax rate declining from 12% to 11%. That is not huge but for a company with all of it earnings subject to Alberta taxes that would add slightly more than 1% to net earnings starting today. There will be a further 1% cut on January 1, 2020 and then 1% January 1 2021 and 1% January 22 when the rate will be down to 8%. This will definitely benefit Melcor Developments. CWB will also benefit but only to a small extent since much of its earnings come from outside Alberta.

June 27, 2019

Our report on an Enbridge rate reset preferred share is updated and rated (higher) Buy at $15.81 for those seeking tax efficient yield and willing to hold for the long term. Rate resets and in particular the Enbridge rate rests have disappointed investors time and again by falling in price due to falling interest rates combined (paradoxically) with higher market rates on newer rate reset shares being issued. Meanwhile these shares have paid their dividend exactly as required. This particular share will reset in December. Interest rates are hard to predict but if the 5 year Canada bond were to stay where it is then the yield at the current price would be 6.4%. If the 5 year Canada bond yield falls then the reset yield will be somewhat lower- but still attractive in such a low interest rate world.

On Thursday, the S&P 500 was up 0.4% while Toronto was about unchanged.

Toll Brothers rose 2.1% and Dollarama was up 2.2%. FedEx was up 2.1%.

Shopify rebounded 4.0% which indicates a lot of resiliency and faith in that company.

June 26, 2019

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

Melcor Developments was one of the larger decliners on our list – down 2.7% to $12.55. That means the shares are trading at about 40% of book value. And the book value consists of real estate assets with no goodwill on the books. The stock is thinly traded and has little or no analyst coverage. It seems quite likely it will report a weak Q2. The company had bought back shares from October through March. They were only allowed to buy back a tiny amount each day, but they did so regularly for about six months. After the end of March they stopped buying. Possibly they want to conserve every last dollar at this time when their sales are lower? Or possibly they decided that the small amount was just not worth the bother. Insiders were also not buying except that one director bought just a few shares.

Due to the low share price, Melcor’s dividend yield is now attractive at 3.9%. The company has indicated that it would like to maintain a reliable dividend but that cannot be guaranteed if earnings decline too much.

Stantec was down 2.2%.

FedEx was up 2.5% despite its weak earnings report and weak outlook.

Trade uncertainties are weighing some stocks down. Checking the latest rail car loading reports published today:

U.S. rail car traffic is noticeably down compared to the two prior years. Categories that are down include intermodal (which is consumer goods), food and farm products (excluding grain), metallic ores and minerals. On the other hand, petroeum product car loads are up substantially.

Canadian rail car loadings in contrast are running slightly higher than 2018 and substantially higher than 2016 and 2017. Most categories are up but coal is down noticeably and farm products are down slightly. Petroleum car loadings are up substantially.

Oil prices including for Western Canadian Select have rebounded somewhat in recent days as has the Canadian dollar.

June 25, 2019

On Tuesday, the S&P 500 was down 1.0% and Toronto was down 0.9%.

Accordingly, the great majority of the stocks on our list were down.

FedEx was down 3.1% and then released earnings after the close. While the earnings beat estimates on an adjusted basis there was a lot of bad in those earnings and FedEx is projecting a drop in adjusted earnings in the next year. My faith in this company is diminishing. The stock is not expensive in relation to earnings but tht assumes it can back to growing earnings per share.

Shopify was down 9.0% in Toronto.

Bombardier announced the sale of its commercial regional jet business for some $550 million. That seems to me like a pathetically low figure. Thought it does beat out the sale of half the C Series to AirBus last year for approximately zero. This latest sale could require a another write-off it it was sold below book value but I did not see any mention of that. Bombardier has been extraordinarily poorly managed for the past couple of decades at least. The newish CEO might be a step in the right direction but the second and (especially) third generation family members that drove Bombardier to the brink of bankruptcy retain control and significant management authority.

Statistics Canada reported that wholesale trade rose in April.

June 24, 2019

Markets were relatively quiet on Monday as the S&P 500 was down 0.2% and Toronto was about unchanged.

Shopify was down 4.8% giving back a little of its recent massive gains as some analysts think it has ran up too far.

FedEx was down 2.7%.

The Canadian dollar has shown strength this month as it is now near 76 cents whereas it was slightly under 74 cents U.S. at the start of this month.

June 23, 2019

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

Couche-Tard was down 3.1% as it retreats from recent record highs. Experience suggests that this is a stock to hold for the long term perhaps adding on dips. Selling when it seemed too expensive or somewhat over-priced has been a mistake.

Toll Brothers was down 2.6%. The market for new homes in the U.S. has never fully recovered from the scars of the financial crisis. Homes are very affordable in the U.S. the scars of the financial crisis still weigh on the market.

AutoCananda was down 4.6% giving back some its recent gains. It remains a speculative and unpredictable stock mostly due to its disastrous U.S. dealership purchase of just over one year ago. Absent the U.S. division, the stock would be higher.

Trump (and the U.S. administration) has thrown more uncertainty into the market with his various pronouncements of a possible Chinese trade deal and his upcoming meeting with the Chinese leader. The passage of the USMCA deal is also uncertain given Democratic Party opposition and the difficulty of amending the agreed to deal. There is also the escalating tensions with Iran. Of course the reality is that markets are ALWAYS uncertain even when all appears calm.

June 20, 2019

On Thursday, the S&P 500 was up 0.9% and Toronto was up 0.4%.

Couche-Tard was down 2.7% but that was likely just due to some analysts deciding that it has run too far too fast.

Penny Stock Ceapro was down 8.3% to 33 cents. That was on significantly higher volume than normal and may have simply been caused by someone wanting to sell a lot of shares. It is a very speculative company but does have some good prospects. I added a little to my position but it remains a small position.

Statistics Canada reported that full-service restaurant sales in April were up 6.5% year over year. That should bode well for Boston Pizza. But it seems that have been lagging the industry. Still, with a 6.5% gain they should have achieved some same-store gains in April. It is same-store sales gains that are drive distributable cash per unit. Even 1 or 2% same-store sales gain would be quite acceptable.

June 19, 2019

On Wednesday, the S&P 500 was up 0.3% as the FED held interest rates unchanged but signaled it might now be more open to a cut but that depends on future data. Toronto was roughly unchanged.

Canadian energy stocks did not react much to the Trans Mountain approval – it was fully expected. And of course many hurdles remain and much time will pass before any oil will flow – if ever. My bet would be that the line will get built but it’s too early to count on it.

Shopify surged another 6.8% after announcing new features. It’s Chielf Operating Officer stated that Merchant Services will see one very dominant player (like Google in search, Facebook in social media -a winner take (nearly) all situation). And that Shopify is well positioned to be that dominant winner. If true perhaps Shopify’s stock price is justified. But given a huge multiple to sales it is going to have to continue to grow very rapidly indeed.

At the far end of the spectrum from Shopify, Boston Pizza Royalties (which is profitable and paying out about 102% of earnings but struggling to grow) was up 1.9% to $18.17. This is the first time above $18 since last August. This entity yields 7.6% but it is going to have to resume same-store sales growth soon if it is going to maintain let alone grow its distribution. Hopefully, it is having a good Q2 perhaps boosted by the Raptors success.

Mexico’s Senate has voted 114-4 to approve the new USMCA trade deal. I believe Canada is set to approve it as well. But meanwhile The U.S. is talking about proposing changes. I don’t know how that would work. Passage of the USMCA by all three countries would be positive for stocks. But I don’t know how Mexico and Canada would react to any proposed changes to the agreement that was already negotiated.

A correction – I had mentioned that the interest rate on what is basically a “high” interest account for TD Direct investors (TDB8150) was down to 1.6% for 1.75%. I was mistaken. The rate is unchanged at 1.6%. With longer term interest rates declining I am expecting this rate to go down. It will certainly go down if the Bank of Canada lowers interest rates later this year as some expect it will.

June 18, 2019

Tuesday was a strong day in the markets as President Trump announced that he would meet with the Chinese leader. This was taken as good news for trade and the economy.

The S&P 500 was up 1.0% and Toronto was up 0.9%

SNC Lavalin was up 5.5% as it announced it had named an executive to lead a cost cutting effort.

Apple was up 2.3%.

The federal cabinet approved the Trans Mountain pipeline. But it’s not clear how soon construction will start and it is clear that opponents will continue to challenge the project in court through on the ground protests and attempted blockades. Markets should react positively but perhaps in a muted fashion given past false starts for this pipeline.

June 17, 2019

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

CRH Medical was up 3.1%. Couche-Tard was up 1.9% as it has continued to make new highs this year.

There are more signs of lower interest rates. RBC lowered its posted rate for a 5 year fixed rate mortgage. Checking with TD Bank, their posted five year mortgage rate is 5.34% but their actual rate offered is far lower at 2.86%. I had been expecting TD to lower the rate on their investment savings account that can can be used within a self-directed account (TDB 8150). I notice today the rate is 1.6% whereas it had been 1.75% for for quite a few months. The rate on the five year government of Canada bond is down to 1.34% which is considerably lower than the 2.4% level of last Summer. Various rate reset preferred shares have declined in price to yield in the 6% range. I would think that at some point the market might decide that 5 and 6% is quite attractive if rates are once again headed down.

June 16, 2019

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

AutoCanada gave back 2.5%.

On a year to date basis the markets and most of the stocks on our list have done well. But that came after a sharp decline at the end of 2018.

The overall markets as well individual stocks are always reacting to the latest news. And reacting to predictions of what news will be.

On Tuesday, the Trudeau government is expected announce the approval of the Trans Mountain pipeline. Although approval is expected, the actual approval would likely be positive for companies hat are directly or indirectly exposed to energy and the Alberta economy. But the approval may also come with various conditions that will be viewed as positive or negative. And of course the opponents of the line will likely vow to keep blocking construction in any way they can including more court challenges. But construction should get underway almost immediately.

If the Trudeau government instead announces that the line is not approved or that it faces another delay it would be quite negative for the energy sector and Alberta. I would expect a very angry reaction in Alberta if that happens.

CMHC reported that housing starts were lower in May but still running at over 200,000 starts annually. Multi-family housing starts are volatile. On a smoothed seasonally adjusted trend basis, CMHC reports that that starts were down 1.8% versus April. Given my investment in Melcor Developments and its positive rating on our list, I am always interested in the single family home starts in Alberta. These were down 28% in May and 29% year to date. Clearly, Melcor will have a very weak Q2 for Canadian lot sales. But they do have other revenue sources including U.S. lot sales, building development in Alberta and income from rental buildings.

In more positive news, Alberta’s population rose 1.7% year over year in Q1 versus 2018. The Alberta’s economy is weak but with a growing population there will still be some demand for new houses. Melcor will slow its development of new lots. So far, I am not aware of any material decline in lot or land values.

June 13, 2019

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

Dollarama soared 11.3% after reporting better than expected results and an improved outlook.

AutoCanada was up 4.3% after announcing the sale and lease-back of three more of its dealerships. These transactions have pluses and minuses. They generate cash but commit AutoCananda to lease payments. To the extent they are done on a strategic basis, that is perhaps a good thing. To the extent they are done more of a last resort they are not a good thing. Hopefully they are another sign of new management being active to turn things around at AutoCanada. In related news, reports indicate that revenues at new car dealers are up despite lower new car sales. This is due to stronger used car sales at those dealers. Also average prices are up driven by increases in truck prices.

I plan to add Lulu Lemon to the site in the next few days or so. It has very strong brand power and earns high margins.

June 12, 2019

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

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

Today, I attended Stantec’s “Investor Day”. In reality this is a day for analysts and institutional investors. They had a good turn out with 22 representatives from institutional investors and 11 “sell-side” analysts representing mostly the capital markets divisions of the various banks.

I have always thought that Stantec was well manged and that impression was reinforced today. The top executives seemed very competent and knowledgeable. And they all seemed to have credible plans for growth. Stantec has been targeting revenue growth of 15% annually. However there was some indication at the meeting that 15% might be a stretch and that they might lower the goal (I suspect that would be to lower double digits). After several tough years it appears that Stantec is set to resume growing earnings per share.

June 11, 2019

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

SNC Lavalin was up 7.0% after a surprise announcement that its CEO will retire and that an existing executive was named interim CEO and has been asked to perform an expedited strategic review of the company.

Canadian Western Bank was up 2.1%. AutoCananda was up 2.3%.

June 10, 2019

On Monday, the S&P 500 rose 0.5% and Toronto was down 0.1%

Trump who, love him or hate him, it seems clear longs to be a dictator called into CNBC this morning to complain about the FED acting independently. Trump has been good for the markets – but at what price?

CRH Medical was up 3.6% but has been weak lately. FedEx was p 2.4% presumably due to easing trade tensions with Mexico. Linamar was up 2.3%. Aecon was up 2.8%

Visiting Kelowna, it is my impression that business is slow. BP West Kelowna Monday at lunch was not very busy 12:30 pm and was looking really quiet shortly after 1 pm. A higher end golf course (Tower Ranch) was quite quiet on Sunday despite that being the best weather in a few days. It could be that Alberta residents are staying away over the pipeline issues and higher property taxes on out-of-province Canadians (domestic foreigners?) who own vacation properties in the bigger centers in B.C. including Kelowna.

June 10, 10 am eastern

Linamar is up 2.1% likely due to Trump’s agreement with Mexico to not impose the new (illegal-under-NAFTA) 5% and rising tariffs on everything that he had threatened. The reaction would likely be more positive if the market was more certain that the new north american trade agreement will be passed soon and that Trump can reach an agreement with China.

Regarding Canadian Western Bank. I had expected that they would be buying back shares in May under their new (modest) buy back program. But they bought none until May 29 and May 31 when they bought a few shares mostly at $28. It is disappointing to see that they did not buy more. On the other hand they are shrewd and bided their time to get a good price. They would prefer to keep their equity capital for expanding their business. But they have some equity they can spare and will likely buy more shares in June if the price remains low enough.

With the big Canadian banks in the news regarding the potential for bigger loan losses and regarding short sellers, Canadian Western Bank will likely be held back as well. Unless there are going to be unprecedented loan losses at CWB it should turn out to be a good investment since it is trading at only about book value. Over time it should benefit from a rising book value as well as an increased trading multiple to book value.

June 9, 2019

Posting from Kelowna this Sunday evening.

The big news on Friday was Trump’s new agreement with Mexico. This should be quite positive for markets on Monday. Linamar should benefit from this news.

June 6, 2019

Thursday’s markets saw the S&P 500 rise 0.6% as there was some optimism that Trump would delay the new 5% tariff on Mexico. Toronto was up 0.1%.

The biggest gainer on our list was Starbucks – up 1.8%.

After the close, Canadian Western Bank announced it will issue a 10 year debenture that pays 3.668% for five years and then a floating rate of 1.99% plus the 90 day bankers acceptance rate after that. These bondds have “bail-in” provisions – they are non-viability contingent capital. Therefore, in theory, these bonds could be automatically converted into common shares if CWB ran into big financial trouble. The market likley perceives little chance of that happening. Still, the market perceives some risk in these bonds given that a government of Canada ten year bond now pays closser to 1.70%.

CWB is raising $250 million with these bonds “for general banking purposes, including future refinancing requirements.” I note that CWB currently has $250 million in subordinated debentures outstanding. CWB is eligible to redeem those existing debentures as of December 17, 2019. It appears that the existing debentures pay somewhat lower interest than the new bonds to be issued. However it may be that they are not as attractive to CWB as capital because they may not have the same and latest “bail-in” provisions preferred by the banking regulator. Therefore my guess is that CWB will use the $250 million to repurchase the existing $250 million of bonds in December. That will likely improve certain of their capital ratios, such as Teir 1, although total capital would be unchanged. In any case, the new offering is nothing to be concerned about.

June 5, 2019

Wednesday was a mostly positive day in the markets with the S&P 500 up 0.8% and Toronto up 0.3%.

Shopify surged 6.6%.

RioCan was up 2.2%.

Linamar was down 2.3% and is very close to its 52 week low. Fears of continued trade wars and slower auto sales weigh this stock down. It’s hard to believe that its trailing P/E is 5.0. Even harder to believe is its forward P/E which according to Yahoo Finance is 4.7. The forward earnings estimate could very well be too high (i.e. forward P/E could be unrealistically low) as earnings could certainly decline. But in any case it appears to be very cheap. But it seems that cheap stocks can always get cheaper with bad news. Even when the bad news is seemingly already more than “fully priced in” stocks can fall when bad news arrives or is predicted to worse.

I notice that about 25% of the votes were “withheld” from each of Linamar’s six directors. (The range was 23% to 30%). That is big withhold rate. I am not familiar with the reasons. Linamar has a very small Board and with two members of the founding and controlling family on the Board and one executive on the Board this Board would lack the independence that is valued by corporate governance experts. I am not aware of any criticism of how the company is being run so I am surprised at the large number of votes withheld. It’s a slap in the face. But a google search reveals that Linamar has had a long history of poor voting results. At times more than half the votes were withheld. Overall, the voting result then is nothing new and I don’t think it is cause for concern.

Linamar had bought back a small amount of shares in March. There were no buy backs in April. But in May, Linamar bought back about $5 million worth of shares at prices from $47 to $43. It appears that the company does believe its share are under valued.

Costco reported May sales after the close. Same store sales were up 4.3%. That’s a respectable gain but less than the stellar numbers it has been achieving for most of the last two years or so.

Today, I attended the annual meeting of Ceapro which is the one penny stock on our list. It was a worthwhile meeting. There was a good turn out. There was a lengthy presentation by management and questions were encouraged and detailed answers were given. This company has a number of initiatives that could transform the company’s fortunes. I don’t know enough at all about the science to judge how likely they are to succeed. But management certainly seems sincerely optimistic. I consider this stock to be very speculative. But I added to my small position today.

June 4, 2019

Stock markets were up sharply on Friday as the FED chair indicated that the FED would consider lowering interest rates if economic data indicate that this is an appropriate response.

The S&P 500 was up a hefty 2.1% while Toronto was up 0.9%.

Among the top gainers were: Apple – up 3.7%. Shopify – up 3.4%, FedEx – up 4.8%, Starbucks – up 3.0% and Linamar – up 2.7%.

There is a debate at the moment about whether the Canadian Banks are soon to face higher loan losses leading to lower profits and lower stock prices. It is very difficult to know the risk that this will happen. Some have been predicting this for at least several years and have either been wrong or early. Banks estimate their future loan losses using various models and assumptions. Actual losses will be determined in the future. But provisions for losses must be estimated now. These provisions are inherently subject to error. Also, the level of loan loss provisions has changed with new accounting rules effective this year.

I have always said that banks are highly leveraged and are potentially risky. But meanwhile they also tend to make very attractive profits and have been great investments as the risk of significant loan losses has not materialized.

The appropriate and prudent response is probably to have and hold some allocation to the banks but not to get over exposed to this one sector.

June 3, 2019

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

Shopify was down 4.3%. Amazon was down 4.6%.

Toll Brothers was up 2.4%.

May auto sales were down 5.9% versus 2018 but it was still the third best May on record. Fiat Chrysler sales were once again abysmal as they were down 25%. AutoCanada unfortunately has a heavy concentration of Fiat Chrysler stores although they have many other brands as well.

There was more bad news for Alberta as an Appeals court has reversed the approval of Enbridge’s “Line 3” pending more study of the risks of an oil spill into the Lake Superior watershed. Perhaps it is a very good thing indeed that the fomer NDP government in Alberta had contracted for a large amount of oil by rail. That was supposed to get started slowly starting as soon as July.

June 2, 2019

Friday was a down day in the markets due to Trump announcing escalating tariffs on all Mexican imports starting June 10. This despite the existence of NAFTA which is still in place and the USMCA which (was?) soon to be ratified.

The S&P 500 was down 1.#% and Toronto was down 0.3%.

Linamar was down 3.4%,.

Statistics Canada reported GDP growth of 0.1% (0.4% annualized in Q1). Ther e are a lot of details int he report but clearly growth was weak in Q1. This report looks at how GDP is “spent”.

Separately, Statistics Canada also reported GDP growth by industry for March. This report looks at how GDP is created. It was more positive showing a 0.7% gain for March versus February.

The overall conclusion appears to be that the economy emerged from Q1 on a strengthening note.

I don’t think Statistics Canada does a great job of explaining the differences in the two types of GDP reports.

I have updated the composition of my own portfolio for information. I have never suggested that anyone follow my portfolio but was asked years ago to provide it.

May 30, 2019

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

Canadian Tire was down 2.0%. The recent decline would appear to provide a buying opportunity. The stock has often had periods of declines but has certainly trended up in the long term.

I had occasion to drop off a car for service at a Hyundai dealer in Edmonton today. This dealership certainly seems busy. There were plenty of staff and there seemed to be plenty of customers. That was 9:00 am and no doubt that is a busy hour. But returning at 1:30 pm the place was still rather busy. Hopefully, AutoCanada’s dealerships are also busy. Looks can be deceiving but that Hyundai dealership certainly looked like a profitable operation.

I was also at West Edmonton Mall for a few hours and it was also reasonably busy for a Thursday morning. I checked to see if the Boston Pizza was busy at noon. They were far from full but were as busy or busier than several nearby competing restaurants.

May 29, 2019

Wednesday was a negative day in the markets as the S&P 500 was down 0.7% and Toronto down a full 1.0%.

The Canadian dollar slipped under 74 U.S. cents as the Bank of Canada left interest rates unchanged.

Among the bigger declines were: Shopify – down 3.6%, Couche-Tard down 3.0%, and TFI International down 3.9% (I added to my position today based on the lower price).

Canadian Western Bank released Q2 earnings. Loans were up 10% and Deposits up 8% year over year which is solid growth. Adjusted earnings per share were up only 1% as non-interest expenses were higher. The Provision for credit losses remained quite low at 23 basis points, up for 20 in the prior yer but down slight from 24 in Q1. Impaired loans rose to 0.62% versus 0.49% last year and 0.51% last quarter and with the increase due to one general commercial loan in Saskatchewan.

Overall the result was not great but not bad. The market initially pushed the stock price down about 3% and I added a little to my position. But the price recovered during and after the conference call and was up 1.7% at the close. That was a nicely positive reaction considering the negative day in the markets.

It seems likely that CWB will continue to increase earnings over the long term although it could certainly have some decreases if recession conditions develop. It has not reported a loss in any quarter in over 25 years but that could happen if loan losses become significantly higher. If CWB does continue to grow earnings over the years it will also very likely enjoy periods where the price to book ratio rises considerable above the current 1.0.

May 28, 2019

Tuesday’s market saw the S&P 500 close down 0.8% and Toronto down 0.3%.

Canadian Western Bank was down 1.7%, probably dragged down by Bank of Nova Scotia reporting higher loan losses even though that was largely in their international business. With some large banks increasing loan loss provisions, CWB might have more reason to do so under the cover of “everyone else is doing it”. But hopefully they have no reason to do so. They report tomorrow, Wednesday, before the open.

The Case Shiller index of U.S. existing resale home prices came out. The headline is that the pace of increases has continued to decelerate. But it is also the case that home prices were still increasing at least modestly in all 20 cities in the index. As usual, the market can choose to focus on the fact that the increase is lower or on the fact that it is still an increase.

It seems that fears hold back the price of many stocks. I read today that Fiat Chrysler and Renault bot trade at forward P/Es of 4. That would seem to indicate a lot of fear that earnings are about to collapse. Meanwhile it seems that no fear at all is shown regarding for example Shopify, up another 1.4% today and trading at a high multiple of sales (as opposed to earnings). Time will tell if either the pessimism or the optimism is justified for various companies.

Canadian national Railway updated May 28, 2019

The report for CN Rail is updated and rated (lower) Buy at $124.50. I have consistently said that CN is a great company given its duopoly position with CP Rail and the rails’ cost advantage over trucking and CN’s excellent history. But it usually tends to trade at a high P/E that makes it expensive. Such is the case now. I’d rather buy it on a dip than at this price. But selling it even when it looks expensive has consistently turned out to be a bad idea (well, depending where the proceeds were reinvested). Buying it, even when it seemed expensive has worked out well over time. I hold a small position.

CN rail is up 1,440% since I first added it to this web site back on August 27, 199 rated only “Speculative Weak Buy” at that time. It is also up 370% since I rated it in the Strong Buy category on January 25, 2007 when it exhibited one of its rare periods of actually looking cheap in comparison to earnings.

Back in the late 1990’s I had a friend who was quite senior at CN and he had many stock options and had made large gains. But he was eyeing maybe selling some of the shares since “it can’t go up forever”. Actually, CN shares might beg to differ given that they have in fact risen fairly steadily in the 23 years since the Initial Public Offering in late 1996. And the shares will almost surely be higher still in another 10 and 20 years. Sure, the shares have had their set backs especially when the whole market was down. And those declines would have been painful at the time. But looking back the declines were always temporary and relatively short-lived. Of course living through a year waiting for a recovery feels like an eternity at the time. But looking back it seems a mere flash of time.

May 27, 2019

U.S. markets were closed on Monday while Toronto was up 0.7%.

Boston Pizza International announced that it has a new CFO effective immediately. That sounded a bit scary depending on why the incumbent was gone. But it turns out that the incumbent was only doing the job on an acting and interim basis until a permanent CFO was found. So, it appears that the announcement of a new CFO is no cause for concern.

A company that I used to have on our list was in the news today. Alcanna, formerly Liquor Stores N.A. (owner of Liquor Depot and Liquor barn with a large number of liquor stores in Alberta) is buying 28 Solo Liquor stores. That surprised me because I am very (perhaps all too) familiar with Solo Liquor stores and I had thought that they were doing well and they were certainly busier than most Liquor Depot stores in my experience. It turns out Solo had 90 stores (far more than I would have guessed) and that they are in receivership. This goes to show what I had already concluded: Liquor retailing in Alberta is a very tough business. There are far too many stores and competition is mostly on price. There are limited scale economies becasue the provincial wholesaler sells to everyone at the same price – no volume discounts. It is very difficult to compete with the likes of Superstore and Costco liquor stores. This move will likely be good for Alcanna especially if many of the remaining Solo stores not purchased are to be closed (which was not clear). Alcanna also operates six cannabis stores. I have not been a fan of Alcanna due to a string of losses the last time I looked and its previously (and since ousted) poor management. But I have not looked at it lately.

May 26, 2019

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

Gaining stocks included BHP Billiton – up 2.6%, toll Brothers – up 1.8% and Linamar – up 2.0%.

Aecon Group was down 2.6%.

Canadian Western Bank is set to report earnings on Wednesday. In general, I expect continued growth. There is always a risk that they will report higher loan losses as some of the larger banks have done this month. CWB has a reputation of prudent lending. It also has a different loan customer mix compared to the larger Canadian banks. I am not expecting any big changes to loan losses. CWB’s stock is cheap in relation to its earnings and book value. It’s been weighed down by negative sentiment towards Alberta even though the percentage of its business in Alberta has been declining. CWB is also working on getting regulatory approval to move to a more sophisticated way of calculating its risk-weighted assets. This will allow it to add leverage to certain of its loan categories similar to the big banks. This should allow it to increase its ROE. However it’s a long process. After a number of years of preparation and testing of software, they plan to apply by October to be allowed to use the advanced calculation method. I don’t think they have ever said how long the approval process would take. Perhaps they will update the status in this Q2 report. When the implementation of the new method starts to come into sight (for example used in analyst forecast earnings models) then perhaps the stock will get a boost from that. I believe CWB has also been buying back shares in May. They may report on that on May 29 or they may wait until early June and report that separately.

Go Raptors! Hopefully the Raptors’ success has brought in more customers to Boston Pizza’s sports bars. More importantly, their success is a nice boost for Toronto and Canada.

May 24, 2019 11:00 am eastern

CIBC is out with a 5.15% rate reset preferred share. This is not an exciting investment but for those looking for yield in a portfolio and especially for tax efficient yield in a taxable portfolio it is worth considering. As of about an hour after TD sent an alert about this, the issue is still open. This is only very slightly lower than the 5.2% they issued at in April. It represents a spread of of about 3.63% over the five year Canada bond. Despite lower interest rates the market is still demanding a relatively high spread over the five year Canada bond. Unless that market spread goes down we will not likely see much recovery in the various rate rest preferred shares. I had explained some of the reasons why rate rest preferred shares have struggled in a newsletter in March.

Checking Western Canadian Select oil price, it was down to U.S. $40.41 yesterday, down 8%. It got as high as $55 in April so going back to about $40 is certainly disappointing for Alberta.

Checking the latest rail car loading reports the latest week for Canada shows a very small increase versus 2018. Car ladings had been noticeably higher than 2018 from late March to early May but are relatively similar to 2018 for the past two weeks reported. In this latest week Petroleum products are up significantly versus last year and coal and chemicals are up as well. Grain is about unchanged. Everything else (Intermodal, Forest, Farm excluding grain, minerals and motor vehicles are down. This could indicate some softening of the the economy in the past couple of weeks. If looking at the data you need to select Canada as it defaults to the U.S.

Toll Brothers updated may 23, 2019

The report for Toll Brothers is updated and rated Buy at u>s. $35.66. The previous update had noted that while profits were up, contracts to build new homes (which become revenues and profits some 9 to 12 months later when the home is built and delivered were down. This trend continued in the latest two quarters but in a hopeful sign, contracted home sales were up in April. The stock looks under-valued but is facing several quarters of earnings decline before probably resuming growth. Therefore the stock may continue to languish under valued for the rest of 2019. Or, if home building picks up then the stock could react to that in spite of reporting lower earnings later this year.

May 22, 2019

On Wednesday, the S&P 500 was down 0.3% and Toronto was down 0.6%.

Stocks that rose included Shopify – up 2.1%, Constellation Software – up 2.3%.

Couche-Tard was up 1.5% and continues to set new highs.

Toll Brothers was down 4.6% despite beating earnings expectations. It is a cyclic company and contracts for new homes are down somewhat. Those contracts turn into revenue only when the house is built and turned over to the owner which usually takes about nine months. That was expected to be the case but California is weaker than expected. I will update the report for Toll Brothers tomorrow. It continues to look under-valued. But with earnings expected to fall for the next few quarters it may remain under-valued.

CIBC’s earnings came in weak due to weaker results in its core Canadian banking. If the other banks come in weak, that will likely “hold back” the price of Canadian Western Bank even though its mix of business is quite different than the big 5’s Canadian banking.

May 21, 2019

On Tuesday, the S&P 500 was up 0.85% and Toronto was up 0.15%.

Dollarama was up 3.5%.

Toll Brothers was up 2.2% ahead of its earnings release. It released ts Q2 earnings after the close and the headlines indicate it exceeded analyst expectations for earnings and revenues. However its backlog and new homes contracted for were down – which was expected. The company expressed optimism regarding new home contracts having picked up as April progressed. The company looks cheap but could remain so since it is expected that earnings will decline at least modestly in 2019 versus 2018. We shall see tomorrow how the markets react to the earnings news.

May 20, 2019

On Monday, the Toronto stock exchange was closed. The S&P 500 was down 0.7%.

Apple was down 3.1%. Toll Brothers was down 2.4%. Starbucks was down 2.9%.

Over the weekend, Trump ended Steel and Aluminum tariffs he imposed on Canada last year. This is thought to pave the way for the approval of the new trade agreement and in general should be a positive for Canadian stocks this week.

Ford is cutting out 7000 white collar jobs or 10% of its world-wide white collar work force. Auto companies are usually though of as big blue collar employers. But apparently Ford has some 70,000 white collar workers. And apparently they just woke up and discovered that 10% of these were redundant. In total as of April, Ford has 196,000 employees globally.

Regarding SNC Lavalin: If the Canada Pension Plan and/or Cintra who each own over 40% of highway 407 decide to exercise their rights of first refusal and buy the 10% of the 407 that SNC has agreed to sell to the OMERS pension plan for $ billion then OMERS will receive an $81 million dollar break-fee. That is somewhat mind-blowing. Can you imagine collecting $81 million dollars in this way? Unfortunately for SNC share holders, it seems that SNC has said that there is no possibility of a bidding war. It sounds like SNC would just sell to the others at the same price and SNC would have to pay the break fee. If so, this sounds like SNC made a bad (incompetent?) deal with OMERS. I had bought a small position in SNC on Friday but that may not have been a wise move. When a company sells an asset primarily to pay down debt rather than because they got a good price, that is a red flag.

May 19, 2019

On Friday, the S&P 500 was down 0.6% but Toronto was up an impressive 1.6%.

Toronto will not trade on Monday due to the Holiday but the U.S. markets are open.

The Canadian banks begin reporting earnings later this week.

Toll Brothers will report on Tuesday. Apparently analysts expect a modest increase. But even if it is a modest decrease the company will continue to look cheap on a trailing earnings basis. The market will likely pay more attention to the outlook. I saw a report last week that U.S. home building is starting to pick up again.

May 17, 2019 10 am eastern

SNC Lavelin announced a delay in selling part of its stake in highway 407. The reason is that the other owners of the 407 want to exercise their right of first refusal. That supports the valuation of the highway. Analysts have said that SNC’s share price is about equal to or slightly below the value of its 407 stake with essentially no value for the engineering business. SNC faces years of troubles and litigation and so perhaps that low value is quite appropriate. Nevertheless, as a definitely speculative move I bought a modest amount of SNC this morning.

Meanwhile Statistics Canada released the March figures for large retailers. In this release they did not give any text to explain whether the results were up or down. And the main table show just five months and does not indicate if the figures are seasonally adjusted or not. That could certainly lead to misinterpretations of the data especially when looking at February versus March. Expanding the table to show March of 2018, I see that the overall sales were up just 0.7% which is weak.

A show on Business News Network this morning was mentioning that Ontario is having a late Spring. That would be somewhat negative for Canadian Tire but I don’t think unfavorable weather is a good reason to buy or not buy Canadian Tire. Weather impacts on their sales tends to even out over time.

May 16, 2019

On Thursday, the S&P 500 was up 0.9% and Toronto was up 0.8%.

Shopify surged another 5.5%.

CN Rail was up 2.2%. In the latest week reported, Canadian rail car loads were equal to the 2018 figure. Forest products, grain and chemicals were lower. The past six weeks had seen increases versus 2018. Interestingly, in the U.S. rail car loads have been running consistently below the 2018 levels since the end of January – this despite the strong U.S. economy.

Canadian Western Bank was down 1.5% to $29.18. I expect it to report another quarter of earnings growth when it reports on May 29. There are never any guarantees but this stock seems cheap relative to its earnings. The stock price no doubt suffers from negative sentiment regarding Alberta. This could start to change with the new Alberta government including the promised corporate tax reductions.

May 15, 2019

Wednesday was a positive day in the markets as the S&P 500 rose 0.6% and Toronto was up 0.2%.

Shopify continues to have tremendous investor support with a 4.1% gain today.

Other gainers included: WSP Global – up 2.2%, Stantec – up 2.2%, and Couche-Tard up 2.2% to an all-time high.

Canadian Tire however was down 2.3%. It appears that the analysts were not happy with its Q1 results despite its excellent same-store sales growth.

Statistics Canada released inflation figures for April. Overall, inflation was up 2.0% from April 2018 which is at the mid point of the Bank of Canada 1 to 3% target for inflation.

May 14, 2019

Markets had a partial rebound on Tuesday with the S&P 500 up 0.8% and Toronto up 0.6%.

WSP Global was up 2.3% after reporting a 27% gain in earnings.

Shaw Communications is selling off its remaining shares in Corus entertainment by way of a secondary issue. Neither company is on our list but the sale illustrates a few things. The sales is being priced at a discount of about 16% to the current share price and on top of that Shaw will pay probably another several percent to the brokers who will sell these shares. Current Corus shareholders will no doubt be dismayed by this sale that pushes down the market value of Corus shares. And Shaw shareholders may also be dismayed at the large discount.

When it comes to the cost to sell shares retail investors actually face far lower costs than do large institutional share owners. Retail investors can usually sell tens of thousands of dollars worth of shares at the market price or at most a few pennies below. That is the case for liquidly traded shares. A Commission of $10 or less may be the only cost. That is truly a bargain. Meanwhile Shaw is facing costs in the order of 18% to quickly unload this huge position. And I recall that last year Metro faced a large discount when it sold a large block of Couche-Tard shares. Trading fees are a rare case where the little guy actually wins.

Canadian Tire updated May 14, 2019

Canadian Tire is updated and rated (higher) Buy at $142.30.

Its Q1 report contained both positive s and negatives. Its same-store sales growth was stellar with 6.1% overall growth and that was on top of the 5.1% growth that occurred in Q1 2018.

But, adjusted profits per share were down 18% by our calculation. This was due in part to timing differences including a negative true-up of a margin sharing arrangement with its dealers. Shipments to stores did not grow as fast as same-store sales and that simply a timing issue. In addition, profit margins were down modestly and price competition is intense. Overall, based on the higher sales and based on management’s confidence, it does appear that Canadian Tire’s positive trend has changed despite the lower profit in Q1. There are always risks but Canadian tire appears to be an attractive investment.

May 13, 2019

Stocks were down on Monday as Trump’s trade war with China escalates. The S&P 500 slumped 2.4%. Toronto did better with a decline of 0.6%.

Among the bigger declines was Apple, down 5.8% because its iPhones are mostly made in China and will be hit with Trump’s 25% tariff.

REITs and utilities did better today, for example Fortis was up 0.6% to $50.12.

The ONEX purchase of West jet at a big premium illustrates the fact that companies can often be worth more on the private market than on the publicly traded market. It’s also interesting that West Jet even with the premium was sold for $5 billion. Meanwhile I understand that many of the not-yet-profitable Cannabis companies are trading at valuations far higher than that.

May 12, 2019

On Friday, the S&P 500 and Toronto were each up 0.4% (but futures suggest markets could open lower by close to 1% on Monday morning).

Canadian Tire was down 2.6% as analysts digested its Q1 results which featured very good same-store sales growth but with earnings that did not meet expectations. Having looked at the earning report it looks to me like management remains very confident in how things are progressing.

AutoCanada was up 4.5%.

Stantec was up 2.0% after releasing Q1 earnings. I attended Stantec’s so-called annual general shareholder meeting on Friday morning. Well, it turned out that this was a meeting in form only and not in substance. I learned that for the last five years or so they stopped bothering to have any kind of management presentation at the annual meeting. They simply go through the process of officially recognizing the votes for directors and a few other standard items, all of which are pre-ordained as essentially all the votes have come in in advance of the meeting. It was disappointing that they appeared to have basically no desire to attract any retail share owners to their meeting. (And extremely few showed up.) This is probably the future for most companies. No financial journalists showed up – possibly because there no longer are any in Edmonton? At least I got a look at their new building the tallest in Edmonton by far – They don’t own the building but are the main office tenant and have their name on the building.

On Friday, Statistics Canada released the latest labour force survey and the results were eye popping!

“Employment rose by 107,000 in April, with notable gains in part-time work for youth. The unemployment rate declined by 0.1 percentage points to 5.7% as more people participated in the labour market.

On a year-over-year basis, employment grew by 426,000 (+2.3%), with gains in both full-time (+248,000) and part-time (+179,000) work. Over the same period, total hours worked were up 1.3%.”

Even considering that this is a survey rather than a count and that it incorporates seasonal adjustments and is generally subject to some level of error and uncertainty – this was undeniably a very strong report. It bodes well for Canada’s economy and corporate profits.

Melcor updated May 12, 2019

The report for Melcor Developments is updated for Q1 results and rated Buy at $13.40. Single family home building in Alberta has declined significantly and therefore Melcor sold 46% fewer building lots in Q1 compared to Q1 of the prior year.

In addition, no lots were sold in the U.S. as those sales tend to be done in larger blocks and do not occur every quarter. They are actively developing lots in the U.S. for sale later this year.

Melcor reported a significant decline in earnings in Q1 and that seems likely to be the case for the full year 2019. Lot sales in Canada will almost certainly decline. Offsetting this, they are developing more property in Alberta this year which has been a reliable source of profits. And U.S. lot sales could be higher. The market value of their investment rental buildings has recently been holding up well but there could be some declines due to moderately higher vacancies rates.

So, the near-term earnings outlook is certainly negative.

But meanwhile the shares trade at just 42% of book value and the book value consists of raw land, developed land, finished building lots and income (rental) properties that appear to be worth at least their stated book value. That would appear to provide a strong margin of safety.

Unfortunately, it appears that even more patience will be required for those holding this investment.

Ultimately, Melcor’s share price over the next few years will depend on whether the province can continue to grow leading to a rebound in single family home construction and increased demand for its office and retail rental space. There has been over-building in the office segment which will hold down lease rates and occupancy levels for some years. Despite a lot of gloom in Alberta, its real GDP grew 2.4% in 2018 and the population grew 1.7%. The unemployment rate has declined from a high of 9.1% in 2016 to 6.7% as of the April report. And the price of Western Canadian Select has improved sharply in the past six months to about the $50 level. Hopefully there will be progress on the pipelines including an expected federal cabinet approval of the TransMountain pipeline in June. That and the more business-friendly polocies of the new conservative government could certainly increase the optimism levels.

Overall, Melcor looks attractive based on its large discount to book value, but the stock is not without risk of languishing or declining.

The report for the Melcor REIT is also updated for Q1.

Boston Pizza updated May 10, 2019

The report for Boston Pizza Royalties Income Trust is updated and rated Buy at $17.52.

The 7.9% cash yield is quite attractive.

If the 11.5 cents per share (unit) per month distribution will be maintained for a long time then this is a good investment. If the distribution will gradually increase at even 1 or 2% annually then this will be quite a good investment.

It all hinges on whether or not BP can maintain or grow its same store food sales. Liquor sales have no impact, each restaurant pays a royalty on food sales only – this does include takeout. Adding new restaurants has almost no impact since new units are issued to BP International for each new restaurant. New restaurants are supposed to be accretive although to only a very small degree – a 10% increase in the number restaurants is supposed to add 0.75% to distributable cash per unit but that may be more than offset by cannabalization of existing locations in many cases.

BP has historically increased its same store food sales – perhaps mostly simply due to menu price increases over the years. But in recent years same store food sales are down slightly due to several factors including the recession in Alberta, a new sales tax in Saskatchewan and higher minimum wages in Ontario and Alberta that led to additional menu price increases which in turn led to some customers staying away. Another factor could be that the Boston Pizza brand is getting a bit dated in the market. Certainly in Alberta newer chains including Brown’s Social House and The Canadian Brewhouse have taken market share.

Meanwhile BP was able to attract franchisees to build 10 new locations across Canada in 2018 – which shows confidence. And BP continues to try to attract business through advertising and menu updates.

Whether or not BP will be able to maintain or grow its same store food sales is not easy to predict. Take-out orders including Skip the dishes is adding to sales but in-restaurant sales have declined somewhat.

Adding to the risk is the current 103.4% payout ratio. They need to once again achieve same-store food sales growth soon in order to push this ratio back down to 100%.

The bottom line is an attractive cash distribution that could increase over the years, but which could also decline – although probably only slowly – but any decline in the distribution would likely see a significant drop in the unit price.

May 9, 2019

Thursday’s action saw the S&P 500 down 0.3% and Toronto down 0.5%.

Alimentation Couche-Tard was up 1.7%.

Canadian Tire was down 1.7% after releasing Q1 earnings that featured lower profits but very strong same-store sales growth. I added to my position on the dip this morning.

Canadian Western Bank was down 2.25%.

Boston Pizza was down just 0.4% which was not much reaction to its earnings report. It appears that analysts expect it to maintain the distribution.

Stantec reported earnings after the close with a modest 5% growth in adjusted earnings per share. But revenue growth was strong at 12.7%.

Boston Pizzza comment May 9 before the open

The BP Royalties Income Fund released Q1 results before the open. The results were better than I feared they might be but not as good as I hoped. Distributable cash per unit was down 0.7%. The trailing payout ratio was about stable at 103.4%. Same-store sales were down 1.3%. They were unchanged at 0.0% on the more important franchise-sales basis (which drives the franchise fee collected by the fund).

BP needs to begin to generate increases in same-store sales driving increases to distributable cash per unit. Otherwise it is going to have to cut its distribution. It would likely be a small cut and the cash distribution would remain attractive. However, the market would likely react quite negatively. They have indicated they have new menu items and promotions to drive sales but so far the results are not apparent. The next two quarters will need to show progress.

Despite the very attractive 7.8% cash yield, I am losing my enthusiasm for this name. It appears to be losing market share to newer entrants. Historically, they have been able to slowly increase the distribution even if just due to menu price inflation. Recently there has been some headwinds.

It may be prudent to trim this position.

May 9, 2019

On Wednesday, the S&P 500 was down 0.2% while Toronto rose 0.2%

There was not much movement of note in the prices of the stocks on our list but AutoCanada rose 2.9%.

A headline today was that housing starts in April jumped 23% to an annualized 235,000 housing units. And even single family starts were up 6%. Well that sounded good. But really it was too good to be true. These gains were versus March and volatility makes such a month over month comparison rather unreliable. CMHC gave top billing to saying that the trend line was up just 2% to 206,000 units. That’s a far cry from a 23% increase.

On a year-to-date basis housing starts are down 8% and single detached are down 29%!

In Alberta housing starts are down 15% year to date and single detached starts are down 29% (and were down 25% versus April 2018). The weak numbers for Alberta are not a surprise.

Melcor Developments reported Q1 results after the close. As expected, it was a weak quarter. Its results are inherently lumpy due to sales of commercial land in Canada (mostly Alberta) and of residential lots in the U.S. which can be high in one quarter and then at or near zero in another quarter. Residential building lots in the U.S. tend to be sold in larger quantities to fewer builders versus Canada so that some quarters will have no sales (like this one) and other quarters have substantial sales. Since a weak quarter was expected, the stock may not react much. It’s property development division continues to be strong. Despite the slow economy in Alberta a fair amount of development continues. Melcor develops property only after getting sufficient leases in place ahead of construction.

May 7, 2019

On Tuesday, markets declined in further reaction to Trump’s trade tariff threats against China.

The S&P 500 was down 1.65% while Toronto was down 0.8%.

The larger decliners included : Linamar, down 2.9%; WSP Global, down 3.5%; Constellation Software down 3.5%

Regarding Linamar, I read the conference call transcript today and got a better sense of their outlook. Management is projecting a mid-single digit rise in normalized operating earnings – despite weakness in a number of its markets. It was not clear, but this probably means that actual adjusted net earnings per share will be flat to down slightly since interest costs and depreciation will be higher. It appears that Q2 will show an earnings decline and the company expects results to start to improve in the last half of the year. So the company does face some headwinds. But the stock price seems to more than reflect that and appears very cheap. I added somewhat to my position. Despite the low valuation the stock could certainly struggle given negative market sentiment towards this industry and given some decline in earnings from the excellent levels of 2018. This is another stock that will require considerable patience.

Capital Power 5.75% rate reset issue May 7, 2019

TD Direct has a new issue from Capital Power of a 5.75% rate reset share that has a minimum reset of 5.75%. This is worth considering especially for those looking to generate cash yield from a portfolio and especially in a taxable account where the dividend tax credit applies. The other discount brokers presumably have this offer as well. It will likely sell out fairly quickly this morning. But it was still available about 90 minutes after TD sent is alert. If you are interested in new issues like this sign up for new issue alerts from your broker.

May 6, 2019

On Monday. markets were initially down about 2% as Trump escalated trade tensions with China, but by the end of the day the decline was modest.

The S&P 500 was down 0.45% and Toronto closed virtually unchanged.

Earnings reports this week include Stantec, Canadian Tire and Melcor Developments.

With the sale of its problematic construction services division, Stantec can hopefully report a good earnings increase from continuing operations. It should be benefiting from the strong U.S. economy.

Canadian Tire has been growing earnings but could face headwinds from weather and a lower Canadian dollar.

Melcor will likely report continued progress in its commercial building development activity, as well as its U.S. operations. Its rental properties will likely be down moderately. Residential home building lot sales will likely be quite weak.

Linamar updated May 6, 2019

Linamar is updated and rated Strong Buy at $48.10. With earnings in the past 12 months of $8.82 and trading at just 82% of book value despite a trailing ROE of 16%, it certainly looks cheap. But the auto industry has declined somewhat especially in Europe and Asia. Linamar was previously projecting an earnings gain in mid single digits percentage for 2019 but with a decline in Q1 it may struggle just to match the 2018 figure. Over time it will likely continue to grow and if so, its current price is a good buying opportunity.

May 5, 2019

Futures indicate the market could open down about 2% as Trump has escalated the trade war with China imposing higher tariffs, apparently hoping to jolt China into fast agreement on a trade deal.

On Friday, the S&P 500 was up a hefty 1.0% and Toronto was up 0.5%.

Shopify was up 3.3%, Amazon was up 3.2%.

Canadian Western Bank was up 1.5%, Canadian Tire was up 1.6%, Toll Brothers was up 1.6%, American Express was up 1.8% and Andrew Peller was up 1.9%

Linamar was down 3.6% after reporting a decline in Q1 earnings. This stock certainly looks cheap. But 2019 is expected to be a weak year in which it will struggle to achieve any earnings growth. Therefore it may well remain cheap for some time.

AutoCanada was down 7.8% after reporting a loss in Q1 and after withdrawing its guidance regarding its expected 2019 EBITDA from Canadian operations. The withdrawal of guidance is something that tends to upset analysts. Management is still expressing a lot of confidence that things are getting better.

Warren Buffett and Charlie Munger once again answered questions for about five hours (with a break for lunch) at Berkshire’s annual meeting. Yahoo Finance livestreamed it: (The questions start about an hour into the recording).

In responding to one question about how to invest successfully, Charlie Munger said “Figure out what works, and then do it.” That strikes me as useful advice for any aspect of life.

CRH Medical updated May 3, 2019

The report for CRH Medical is updated for its Q1 report. The company replaced the CEO on April 9th. Q1 had a 22% increase in revenues per share. Adjusted earnings per share were about unchanged. My expectations is that revenues and adjusted earnings per share will increase materially (for example perhaps 20%) in 2019.

May 2, 2019

On Thursday, the S&P 500 fell 0.2% and Toronto was down 0.6%.

Shopify was up another 3.9%.

Aecon fell 3.1%.

Canadian Tire was up 1.8%.

The Melcor REIT released earnings which were lower but which was not unexpected.

Linimar also released lower earnings but which also included market share gains in a tough market.

AutoCananda released Q1 earnings. The company reported a loss but also made progress in their plans and so the market may react favorably to the earnings report. The U.S. division continued to be be a big drag on the business.

May 1, 2019

On Wednesday, the S&P 500 was down 0.75% and Toronto was down 0.5%.

Apple was up 4.9%.

Constellation Software was up 2.1%. After the close it announced Q1 earnings with a revenue increase but a decrease of 11% in adjusted earnings per share. It also announced after the close a reduction in its hurdle rate regarding large acquisitions. This means it will pay more for a large acquisition. The company said this will make it more price competitive in securing these acquisitions. Constellation is extremely well managed and I would trust that it is doing the right thing here.

FedEx was down 2.0%. Linamar was also down 2.0%.

CRH Medical reported Q1 earnings after the close. Its accounting is complex and requires adjustments to the GAAP figures to arrive at a figure that better represents its true economic earnings. I thought the results were reasonably good and showed progress. But it is always hard to know how analysts will view the results.

Statistics Canada released 2018 real GDP growth figures by Province. With all the gloom in Alberta it is surprising to see they report a 2.8% growth for Alberta.
“Among the provinces, the strongest growth occurred in Prince Edward Island (+2.6%), followed by Quebec (+2.5%), British Columbia (+2.4%), Alberta (+2.3%) and Ontario (+2.2%). Growth was below the national average in Saskatchewan (+1.6%), Manitoba (+1.3%) and Nova Scotia (+1.2%). New Brunswick real GDP edged up 0.1%.”

April light vehicle sales figures were released and it was yet another weak month with unit sales down 3.5%. Fiat Chrysler was again very weak with a decline of 9.8%. I had occasion to be in some dealers over the past few weeks and things appeared to fairly busy. I just noticed today the local Chrysler dealer in my area is relocating to a new (and presumably larger and costly) location. Car dealers are still generally a profitable business as long as they are not saddled with too much debt.

A newer Canadian Western Bank preferred share CWB.PR.D that I have mentioned in the past closed today at $25.65. It pays 6.0% on $25 and so yields 5.8% and will not reset for almost five years. I had bought some when it was issued but was allocated less than I asked for. I bought more today at $25.76. This was in an RRPS where I want to generate a cash yield. 5.8% is not an exciting return but it can merit a place in a portfolio.

April 30,2019

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

Shopify was up 7.5% to U.S. $243.53 ($325.75 in Toronto) after reporting a 50% increase in Q1 revenue to $321. million. The market cap is U.S. $27 billion or about 21 times run-rate revenue. The company lost money on a GAAP basis but made U.S. 9 cents per share on adjusted basis. It is a massive growth story. It would seem to be very difficult to value the stock given the lack of earnings but offset by massive growth and huge expected future earnings.

Aecon was up 1.7%.

Toll Brothers was up 1.4%. FedEx was up 1.5%.

CN Rail was down 1.4%. Dollarama was down 1.8%.

I attended the annual meetings of the Melcor REIT as well as Melcor Developments today. I got clarification on the REIT’s right of first offer on buying buildings that Melcor develops. Once Melcor Developments has developed a building and has it leased it to at least 90% occupancy it is obligated to offer the property to the REIT at appraised value. I asked what the advantage was to Melcor Developments. Because Melcor Developments owns 53% of the REIT they don’t have to pay capital gains tax on the sale and yet they have effectively sold 47% of the building to the public share owners of the REIT. They also avoid real estate selling fees of about 2%. Based on these advantages, the REIT is usually able to negotiate a discount of 2 to 4%. So, it seems that the right of first offer is advantageous to both the REIT and Melcor Developments. Unfortunately, the REIT usually has to issue new units to pay for the building (along with debt). That works a lot better when the REIT units are at 100% or more of book value and does not work so well when they trade at 70% of appraised asset value as they now do. 

Overall, the message from these meetings was that Melcor Developments and the REIT expect relatively stable results in 2019. There continue to be some headwinds. The shares of both Melcor and the REIT may continue to languish unless there is some catalyst such as higher oil prices or a pipeline announcement. Melcor Developments is subject to significant earnings volatility while the REIT tends to be quite stable in terms of cashflow. But the REIT is paying out around 100% of adjusted funds from operations. I believe the indication was that this may move above 100% but that they would use available cash and credit to most likely maintain the distribution.

Statistics Canada reported that February’s GDP was down 0.1% versus January, . (Does anyone seriously think that the country’s GDP can be measured so accurately that it is known to a 0.1% accuracy? – but certainly a slow month…). contributing to the decline were lower Potash sales to the U.S. as well as lower coal exports. And rail transportation was down 11% versus January. Construction was up.  “Leading the growth was a 1.2% expansion in residential construction due to gains in single, semi-detached, row and apartment type-dwellings.” That seems surprising given weakness in the real estate market. 

I tend to pay more attention to the year-over-year change as a more reliable figure and which largely eliminates the estimation involved in seasonal adjustment. Year over year GDP was up 1.1%. Not great but at least positive. And, as always, these are real dollars and meant to estimate the volume change as opposed to price movements. (Nominal GDP growth therefore tends to be higher counting inflation). Year over year construction was down 4.5% which is consistent with other weak reports regarding real estate.


Today , Trump and the Democrats tentatively agreed to initiate a 2 trillion dollar infrastructure spending program. That is huge and has to be good for the U.S. economy. Some Canadian companies would benefit too such as Stantec and probably WSP Global as well as SNC Lavelin. 

Speaking of SNC… Stephen Jarislowsky (a famed investor who I respect) is calling for a vote on SNC Lavelin’s sale of its 16.5% share of Toll Road Highway 407. Jarislowsky said the portion of the 407 represents 80% of SNC’s value and said that after the sale SNC would be left with a “near worthless” asset (its engineering business). Back in a June 20, 2012 post I said that I thought the top executives knew about the bribes. In general I think SNC’s bribe problems were self-inflicted and they they have always tried to distance themselves from the problem rather than admitting to management’s role at that time. But those problems were a long time ago now. It’s scary to think how a company can ruin its reputation this way. Stantec and WSP Global are both valued for their revenues and earnings and not for their assets. These types of companies must be vigilant in protecting their reputations.

Even with SNC’s troubles I find it hard to believe that its engineering business is “near worthless”. I would think it would eventually recover. On the other hand it is always possible that some or all of it will be sold off to the likes of Stantec and WSP.

After the close, Apple announced Q2 earnings which beat expectations. It also announced it will increase its stock buyback by $75 billion dollars. I don’t think there is any other company in the world that could announce a $75 billion share buy back let alone “an additional” $75 billion. That is truly a staggering amount of money.

Berkshire Hathaway has a deal to help Occidental Petroleum buy Anadarko Petroleum. Berkshire would put in $10 billion and get paid 8% as preferred shares (ranking ahead of other debt it would seem) plus get warrants to buy Occidental shares. This is a sweet deal for Berkshire. Some people complain that Buffett gets these special deals. But he put Berkshire in a position years ago to get these deals. He holds massively more equity and cash than he could do. This is a drag on earnings and return on equity most of the time but then allows these sweet deals. Buffett is also in a position to agree to these sorts of deals on the spot whereas any other source of $10 billion would have to go through some layers of approval and take time. Speed of execution has long been a big competitive advantage for Berkshire.

Occidental Petroleum, by the way, was ran by a fascinating man named Armand Hammer from 1957 until his death in 1990 at the age of 92. I read his autobiography years ago which told fascinating stories about how he made money during prohibition by cornering the market and importing “tincture of ginger” (which apparently contains alcohol)  from India through his father’s drugstore and therefore had about the only legal source of alcohol in New York during prohibition. He had many other profitable adventures including meetings and dealings with Lenin in Moscow both before and after Russia became communist, as I recall. Buffett loves this sort of history, although I am not sure that Buffett would approve of some of the things Armand Hammer got involved in.


April 29, 2019

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

AutoCanada was up 2.5% and Linamar was up 1.8%.

I added a small amount to my Canadian Tire position today. In general, I think the company continues to do well. But headwinds in Q1 (not yet reported) may include poor weather and the lower Canadian dollar.

After the close CN Rail reported earnings which were up 6% but somewhat below expectations. This has been a winning investment for a very long time.

April 27, 2019

On Friday, markets were down earlier in the day but recovered for a 0.5% gain in the S&P 500 and 0.2% for Toronto.

Aecon (see update just below) gained 7.1% after releasing Q1 earnings which featured an 18% gain in revenues per share and a smaller loss than the prior year.

CRH Medical was up 4.6% in Toronto.

Amazon was up another 2.5%.

American Express was up 1.5%.

Regarding AutoCanada, I had emailed some questions to the company and had not received any response despite follow up emails and phone calls. But when I emailed today, the Chairman (and effectively CEO), PauL Antony called me back. He had come onto the Board the very day the disastrous U.S. Grossenger acquisition was announced. He basically said that was one of the dumbest purchases he had ever seen. The due diligence was completely lacking. For example, AutoCanada was not aware that the leases on the purchased dealerships were being subsidized by the car manufactures and even (bizzarely) by the City of Chicago and that those subsidies would end upon the purchase. I believe he was saying that some of the leases have now been negotiated lower but I did not get much detail on that. The bottom line is that Paul Antony certainly appears to believe that AutoCanada can improve from here. But it is going take a lot of work and certainly some time and meanwhile the industry faces headwinds of lower sales. It has become ever more apparent that the past management did a poor job. I believe Paul Antony is far more able and motivated than the past management. But he is saddled with the past mistakes including the money-losing U.S. dealerships.

Our Stock picks are up an average of 14.7% this year. In fact fully 27 of the 28 stocks rated in the Buy or Strong ranges at January 1 are up in price. And the one that is down is down is down by only a penny. Normally that would be great. But it trails the market as the TSX is up 16.0% and also it comes after a poor 2018.

Aecon update – April 27, 2019

Aecon is updated for its Q1 results and rated Speculative (lower) Buy at $18.76

Aecon was just added to the list a few days ago. It’s Q1 numbers came out and I have done an update for that.

Based on Q1 its numbers are improved. 2019 is expected to show a big increase in revenue and a meaningful increase in profits. This was the case in Q1 although profits merely became less negative. The stock could certainly rise from here. But I have hard time “getting past” its record of low ROEs and its low gross profit levels. It takes on large, complex and important construction projects and yet does not seem to make a very good return most years. Q1 is seasonally a tougher quarter but I have a hard time understanding why it did not make at least some bottom line profit in Q1. There were no unusual problems noted in Q1 and yet the lack of profits. The bottom line is that it could be bought for the potential earnings growth this year but it does not seem like a reliably good investment for the long term. But perhaps a different picture will emerge by the end of this year.

April 25, 2019

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

American Express was up 1.6%.

FedEx was down 4.5%.

Toll Brothers was down 2.1%. It had been doing quite well despite mostly weaker results on U.S. home building so the drop today seems like a sort of delayed reaction. And the latest new home sales report was unexpectedly strong. As always, stocks can sometimes move in the opposite direction that might be expected based on news.

The Melcor REIT announced that it has purchased a $12.45 million retail / warehouse building in Calgary that is leased to a national tenant for 15 years with scheduled rent increases. To put this in context, the REIT has total assets of $684 million so this is a modest addition of less than 2% to its properties. The purchase was funded with debt (a credit line). The purchase is accretive to Adjusted Funds From Operations per unit. The use of debt for this purchase means that no new shares (units) have to be issued and that is good. Issuing new units (which is effectively selling off a small portion of all the existing buildings to new owners) at a 30% discount to book value (which is based on the market value of the buildings) in order to buy property that is presumably at 100% of market value would not make sense to me.

Despite already having too much exposure to Melcor Developments I added to my position in the Melcor REIT today. In theory, I am buying a tiny share of their buildings at a discount to the price that buildings trade for in the market.

April 24, 2019

On Wednesday the S&P 500 was down 0.2% while Toronto was down 0.5%.

TFI International was up 5.0% due to its strong earnings report.

The Bank of Canada indicates that it no longer has a bias toward higher interest rates. The five year Canada bond yield is at 1.5%. It is amazing how many times an upward movement in interest rates has fizzled out over the years. Looking at the 5 year government bond yield, going back to 1999, every upward trend has ended and then headed even lower. With the exception that we are still above the lows of 2016. Interest rates are notoriously hard to predict. My bet at this time would be that rates stay about where they are.

Given the above confirmation from the Bank of Canada, the Canadian dollar fell to 74.1 U.S. cents. Not good for Canadians traveling abroad, not good for importers or the prices of imported items but good for exporters – including oil and gas exporters.

Taking a look at rail car loading reports for Canada they are currently running noticeably higher than 2018. They did dip in the last two weeks but there was similar dip in the same weeks last year. The latest data was reported today. Intermodal (consumer goods) was up 10% in the latest week versus last year. Petroleum car loads are up quite noticeably versus 2018. But overall total car load traffic year to date is up only 2.3%.

April 23, 2019

Stock markets were strong on Tuesday with both the S&P 500 (up 0.9%) and Toronto (up 0.6%) closing at new highs.

Gainers included Dollarama up 4.1%, Amazon up 1.9%, Constellation Software up 1.6%.

Linamar was down 2.1%.

A report today indicated that U.S. new home sales rose to a 16 month high in March, topping estimates. That would seem to contradict reports of weaker housing starts. The explanation may be that these were sales of completed homes, both “spec” homes and homes contracted to be built about one year ago. Credit was given to the very recent drop in mortgage rates but it was just not clear to me how many of these were March purchases of spec homes versus homes contracted for some time ago. In any case it is at least somewhat positive news for Toll Brothers.

After the close, TFI Industries was out with a strong Q1 report that appeared to be even better than analyst expectations.

Aecon Group Inc. added to our list April 23, 2019

The large construction company, Aecon is added to our list but only rated Speculative (lower) Buy at $16.86. (It closed today at $17.00) I was asked by an associate of mine to add this to the list and also I thought it would be interesting to learn about this company and to add diversification to the list.

Unfortunately, Aeco has a fairly poor and volatile profit history over the past ten years. But it is expected to grow strongly in 2019 and it has been increasing its dividend which now provides a 3.4% yield. So, it is worth considering given the stronger near-term outlook. But at the same time it has a poor history in terms of profit and it may be wiser to invest in more stable companies. It will report earnings on Thursday which are expected to show a big increase versus a weak Q1 in 2018.

I think Aecon contributes very positively to the Canadian economy through the work that it does. But it has not proven to be a good investment most of the time.

April 22, 2019

On Monday, markets mostly took a break from the recent upward trend. The S&P 500 did manage to gain 0.1%. The DOW was down 0.2% and Toronto was also down 0.2%.

Toll Brothers was down 2.6% after a weak report regarding U.S. single family housing starts in March. Despite lower mortgage rates home building has not picked up. Toll Brothers has done well to have risen in 19% 2019 (before today’s drop) despite continued weakness in U.S. housing starts and permits. Some of the reasons cited for the industry weakness include a lack of available building lots and labour shortages. Normally, I would expect market forces to take care of the labour shortage but it may be that tougher immigration policies are having an impact. Anecdotally, I have heard that Mexican workers were extensively used in home building. If the issue is a building lot shortage this should be a strength for Toll Brothers. They have a big inventory of lots available.

Toll Brothers also announced today that it is now the 14th largest developer of multi-family houses in the U.S. and the fastest growing. It broke ground on 2,800 apartment homes in 2018. It intends to rent out most or all of these. In total it owns or controls land for a potential 18,000 apartment units. Since this ties up capital and since this REIT type income might not be fully valued inside of a home builder / land developer, I would not be surprised to see Toll Brothers sell some of these apartments to joint venture partners or even spin off a partially owned REIT at some point.

Overall though it is not clear how well Toll Brothers stock will do this year in the face of industry headwinds. The stock could remain cheap and of course can always get cheaper, at lest temporarily. But last year they made an ROE of 16% and if they can stay close to that the stock will eventually respond.

Shopify traded over $300 today. It seems that nothing has been able to stop the momentum – not short sellers, not high multiples to sales. Not so far at least.

Tomorrow I will add the construction company Aecon Group Inc. to the list. It is in a tough business. I find it hard to fathom that it only made a net profit of 1.8% of revenue last year. And that was despite a sharp increase in profits versus 2017. It’s ROE has historically been sub-par at least over the past ten years. It does however have a 3.4% dividend yield and has increased the dividend steadily. I think it does great work and benefits the country and its government and private sector customers though its work. It was interesting to learn some of the projects it is involved in. But I find the profit level to be disappointing especially given the risks it takes on. It is set to probably sharply increase profits again this year (forecast around 25%). For that reason, it might be worth a look as a speculative pick but overall it does not seem like a high quality company to own for the long term in terms of profits. It will release Q1 earnings later this week and so buying in the next day or so would be more speculative s opposed to waiting for the earnings report.

Melcor Developments updated April 19, 2019

Our Melcor Developments report is updated and rated (higher) Buy at $13.70

This has been a frustrating investment. It is extremely thinly traded and has basically no analyst coverage. Partly due to a lack of analyst coverage, it trades at a huge discount to book value (currently a 57% discount). It has a history of usually trading somewhat below book value and has traded substantially below book value for the last five years.

I have given some thought as to why a company would trade below book value.

Valid reasons for a company trading below book value would include that the assets are over-valued on the book, that the company is making too low a return on equity and/or that its outlook is for a poor return on equity.

In Melcor’s case about half of its assets are its income-producing (rental) properties that are marked to market and 38% of its assets are land (19% raw land, 7% land under development, 12% land inventory). Overall, there has been no indication that the book value of its assets exceeds fair market value. Values can decline, but currently the land is likely worth somewhat more than book value.

But Melcor’s return on equity on a GAAP basis has been unacceptably low for the past four years. And on an adjusted basis I calculate the ROE at only 5 to 6% for the past four years. But that is under stated because excludes the regular market value gains it has been making by developing buildings.

One way to measure its return on equity would be to look at its average gain in book value per share over a period of years. Since 2009 its book value is based on IFRS accounting which marks its investment rental buildings to market. This caused a sharp increase in book value per share in 2009. Since then, book value per share has grown at a compounded average of 7.9% per year. That growth includes market value gains on buildings driven by development work on new buildings. And I would add about 2% for average dividends as a percent of book value to that for a total 9.9% ROE – which is arguably an acceptable although not a great return on equity. But that also included some benefit from declining “capitalization rates” used in valuing its rental buildings (from 7.28% average in 2010 to 6.47% in 2018) and cannot be expected to apply in future and could reverse with higher interest rates.

Melcor uses FFO as its preferred measure of income. On an FFO basis, Melcor’s ROE in 2018 was only 5 to 6% for the past two years and that is unacceptably low (unless it is expected to rise). But FFO would give no credit for market value gains even on new building developments and so that would seem to understate the “true” ROE.

Overall, it does appear that Melcor’s ROE may be somewhat too low even over longer periods. That would justify the shares trading somewhat below book value. But other reasons such as the lack of trading liquidity and the inherent volatility of earnings may be responsible for most of the discount.

While Melcor is under-valued on an asset basis, it seems it will continue to require patience. It probably should only be bought by investors who are prepared to hold for the longer term such as five years or more.

April 18, 2019

The Toronto Stock Exchange Index closed at a new record high on Thursday, up 0.4% on the day. Meanwhile, the S&P 500 was up 0.2%.

Most of the stocks on our list were up modestly. Dollarama had a strong day, rising 3.3%.

Statistics Canada released figures for Food Services and Drinking places as of February. I focus on year-over year changes. Alberta was up 1.6%. Ontario was up 5.4% and BC was up 5.0%. Even with its concentration in Alberta and considering that these figures likely reflect more restaurants in 2019 versus 2018, this should bode well for Boston Pizza to achieve some same-store sales growth for February (and Q1) – unless they are losing market share. The report also shows that February saw little growth (0.6%) versus January for Canada and was down 1.6% in Alberta. So that is a weak trend to start the year.

Retail sales were also re[ported and there was not much growth year over year but February was stronger than January on a seasonally adjusted basis.

I mentioned I put in an order to participate in the offering of 6.75% convertible debentures from Surge Energy. I see I was allocated only 25% of what I offered to purchase. So, apparently investors found this to be attractive. I would not be surprised if this trades right around par so I can buy more if I want to when it starts trading.

April 17, 2019

On Wednesday, the S&P 500 was down 0.2% but Toronto was up 0.25%.

Apple was up 1.95%. Constellation Software was up 1.8%.

TFI International was up 1.6%. It announced a small acquisition after the close. It will pay only US $7.2 million plus it will take on an undisclosed amount of accounts payables. The transactions adds U.S. $100 million in revenue. Most of the added business will be served out of terminals already owned by TFI. They will acquire only 7 of 69 terminals or locations used by the sellers. It sounds like the business may have been unprofitable for the sellers but could be quite profitable for TFI because of synergies whereby they can serve the customers from their existing TFI locations..

TD Direct was out with an offering of 6.75% convertible debentures from Surge Energy. I don’t know anything about Surge Energy but decided to take a chance and buy some of these for the yield. The deal did not seem to sell out quickly but is now shown as closed.

Statistics Canada was out with the latest inflation figures which were 1.9% year over year. It is remarkable how steady reported inflation has been.

April 16, 2019

On Tuesday, markets were little changed as the S&P 500 was up fractionally and Toronto was down 0.1%.

Toll Brothers was up 1.9%. Constellation Software was down 2.3%.

Canadian Western Bank announced that its rate reset preferred share which reset this month will remain a fixed reset shares. Holders had the option to convert to a floating rate option but only if a minimum of 500,000 shares wanted to convert. That did not happen. Its hard to say if that was due to apathy or a real preference to stick with the fixed rate.

The 3 month T-Bill is currently very similar to the 5 year Canada bond yield. That would mean that the floating rate shares would have started out paying just around precisely the same rate as the five year fixed reset. In this circumstance the floating rate option might have been the better option. Certainly it was if you expect rates to rise over the next five years. But for whatever reasons few people chose the floating option – possibly simply because the default option was to stay fixed for another five years.

These shares will now pay 4.301% of $25 annually. The yield at their current price of $19.21 is 5.6%. When these shares were issued in 2014 the market deemed them to be worth $25 despite paying only 4.4%. This was with the five year Canada bond yielding 1.58% which is basically the same as today. But today the market demands a significantly higher yield of 5.6%. In part that may be due to the fact that very short term accounts now yield closer to 2% whereas they were closer to 0% in 2014. Or it may be due to the poor experience with rate reset shares that has investors demanding a bigger risk premium. In 2014, some investors thought of rate resets as a sort of substitute for cash but with better interest. But resets fell in price and investors found out that they were not a substitute for cash. Also in 2014 investors probably thought there was virtually no chance that the five year Canada government bond rate would fall as it was already so low at 1.58%. But it did fall to near a shockingly low 0.5% at one point. And so today investors know there is a chance rates could fall even if they are expected to rise.

Melcor REIT updated April 16, 2019

Our report on the Melcor REIT is updated and rated Buy at $7.64

The yield at 8.8% is quite attractive. But note it does not qualify for the dividend tax credit and so is best suited for non-taxable accounts. While the yield is attractive there may be little growth in the unit price even in the long term. At some point the units should move back up towards book value which gives some potential for gain. But that may not happen, if at all, for another year or two given the recession in Alberta and pressures to lower rents upon renewal. But he REIT is well managed and has good properties with only about 10% of the space up for renewal in each of the next four years.

The units trade at about 70% of book value and book value is based on the market value of the buildings. That discount as well as the yield support a rating of Buy.

April 15, 2019

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

Costco was up 1.8% and trades at a trailing P/E of 32 and a forward P/E of 29. That is expensive but it is also about typical for Costco.

Shopify was up another 1.8% to $292 in Toronto. I had ran the numbers on it early this year but was not prepared to put a rating on it, other than to say it was speculative. It has surged almost 50% since then. I don’t know the basis for its current price. Do people buy, because it has gone higher? Will its Q1 growth be enough to satisfy expectations? For those with big gains, I would think it would be prudent to at least trim this position.

April 14, 2019

On Friday, markets were strong with the S&P 500 up 0.7%, Toronto up 0.5% and the DOW up a full percentage point.

Correspondingly, most of the stocks on our list were up on the day. FedEx was up 2.6%, Canadian Western Bank was up 1.8%. Berkshire Hathaway was up 1.9%.

Statistics Canad released a report showing that the prices for newly built homes have remained quite stable. In the face of softer housing markets, builders have not done much discounting (though they may be doing some through incentives other than price). Most new single family homes are pre-sold before they are built. It is builders who have “spec” homes that are more likely to be forced to discount – possibly heavily.

Penny Stock Ceapro updated – April 13, 2019

Ceapro is updated. This basically something of a lottery ticket stock. It’s a difficult one to put a rating on but I settled on Highly Speculative Buy / Hold.

Actually, Ceapro does not really even belong on this site because it is such an early-stage company. When I first added it to the site just over two years ago, it was making decent earnings on a line of existing products as well as undertaking research into new products. So, at that time it looked like it might be a reasonable investment just based on its existing products and growth in those and that the research efforts might provide a bonus. Also it had recently raised substantial cash and so had a strong balance sheet.

Subsequently the company disappointed me in several ways. Its sales of existing products fell even as it was spending substantial money to relocate and build expanded production facilities for those products. And over quite a number of quarters it provided almost zero information on the reason for the sales decline. Then the new production facility basically sat unused for about two years as commissioning the facility and obtaining permission from its customers to produce at the new location took a very long time – with not much explanation along the way. Meanwhile they continued to capitalize costs to the new facility and not amortize it which in my view seemed to distort profits upwards. Then they ran into a lawsuit and had to pay out substantial funds.

The company decided to focus more heavily of research for future products. With added expenses and with lower sales of the existing products the profits evaporated.

So now, the reason to buy the stock or continue to own it would be to benefit from the potential of its research efforts. I really have no ability to judge the potential of those efforts. They have a clinical trial just getting underway to use one of their products as a cholesterol-reducing agent. That certainly sounds intriguing and could be worth a lot if it works. But realistically, the odds of a break-through product may be quite slim. They do have a number of other products in development and apparently some of their processing and manufacturing patents may be valuable and could possibly be licensed out.

So, overall, this is definitely a high risk investment. If I did not already have a small investment in it, I would not likely make one now. But given I have some familiarity with it and given its possible future products I have added somewhat to my investment. I would not recommend more than a small investment here. They will need to raise money and might do so at a low share price and there is certainly no guarantee that its research efforts will pay off.

April 11, 2019

On Thursday, the S&P 500 and Toronto were each essentially unchanged.

Shopify was up 2.5% to a another record high.

Penny stock Ceapro was up 10% most of the day and ended the day up 7.5%. It reported a big gain in sales in Q4 and a small profit in Q4. But it remains essentially a lottery ticket on the outcome of its research efforts. I will likely add a little to my small position. This is a highly speculative investment.

Andrew Peller announced that it will undertake a big advertising campaign. I have it rated only (lower) Buy. The advertising should certainly boost sales.

April 10, 2019

On Wednesday, the S&P 500 and Toronto each rose about 0.35%.

Linamar was up 1.7%. Dollarama was up 2.0%. CRH Medical was up 3.0%.

AutoCanada rebounded 4.1%. An interesting report today revealed that sales at Canadian new car dealers actually rose slightly to a new record in 2018. New vehicle sales were down but used vehicle sales were up and the service centers also had gains. Possibly due to its concentration in Alberta and its particular mix of brands, AutoCanada suffered a 3% same-store sales decline. But its more serious problems relate to its newly acquired U.S. operations. Checking insider trading, the only recent trade is that the departing CFO (who is leaving on very good terms and who was part of the new management team) sold all of his 30,000 shares on March 20 at $11.45. Not exactly a vote of confidence on his part.

After the close, Canadian Western Bank announced that they have obtained permission to buy back 2% of their shares. Canadian Western Bank had never bought back any shares until it bought back 2% in December and January in response to its low share price. At their annual meeting last week, I asked if they might back more shares. I did not get a clear answer then, but now I have one. In some cases companies announce buy backs but never follow through. In this case I think we can expect to see them buy up the 2% quite quickly. I view this as a sign of confidence on the part of management.

Also after the close, Costco announced yet another month of strong same-store sales growth.

April 9, 2019

Tuesday’s action saw the S&P 500 fall 0.6% and Toronto down 0.4%.

Shopify rose 2.0%.

Boston Pizza royalties Income Fund rose 1.1% to $17.31. At this price the yield is 8.0%. That suggests that the market may fear a distribution cut and certainly no growth. However, the recent modest gain in BP may indicate that the fear is subsiding. And if BP can begin to show some same-store sales growth that would further quell the fear. Looking at insider trading, there have been no insider trades so far in 2019. Two insiders did grab a few shares late last year at under $15 when markets had slumped.

Checking research, I see that TD does not cover it nor does RBC and apparently only two analysts do. So why might that be? Well, BP only rarely has issued new units to the public. Each year they issue new units to BP International based on the number of net new restaurants opened (which drives additional royalty revenue for the Fund). But that does not produce any Commissions for the brokers. And so the lack of potential commissions would seem to explain the lack of analyst coverage.

The discount on Canadian oil is way down, probably mostly due to the government mandated production cuts. And the price of West Texas oil has increased. Therefore it seems likely that the Canadian oil producers will report better profits in Q1. According to BNN the price of the Energy sector is up 18% this year. Based on the potential for further upside and for diversification, I bought some of the energy ETF, XEG today. Partly to pay for that I sold my modest investment in the Australian ETF, EWA. I will shift the U.S. cash that results from that sale back to Canadian dollars using DLR.u and the Norbert Gambit which I have explained int he past.

The Alberta election is only one week away. If, as expected, the United Conservative party wins, that could possibly generate some optimism for the Alberta economy. And there is an expectation of (another) final? federal government approval, by the end of May, of the Trans Mountain pipeline expansion.

April 8, 2019

After starting the day in negative territory, market ended slightly positive with the S&P 500 and Toronto each up 0.1%.

Apple Inc. was up 1.6% to $200.10. Canadian Tire was up 1.5%.

Statistics Canada reported the value of building permits for February. For Canada there was a decline of 5.7% versus January due to a decline in construction intentions for multi-family residential. These figures can be volatile month to month but there is no doubt construction has slowed down.


April 8, 2019 10:40 am easter time

Bank of Montreal is out this morning with a 5.1% rate reset preferred share. This is down a little from a recent CIBC issue at 5.2% but still indicates lower investor appetite for these shares which means the banks need to offer higher yields to sell them. This Bank of Montreal issue has a reset spread of 3.5% (over the 5 year Canada bond yield) which is on the higher end of what the spreads have been over the years. (For TD the spreads since 20134 have been mostly under 3.0% but the highest was 4.66%.)

At 5.1% these shares could be a good choice for those looking for yield and planning to hold for the long term. still, they could decline in value if the banks actually do run into higher loan losses as some expect.

P.S. earlier this issue was still open but as of 11:00 am eastern it is closed at T.D. Direct meaning they sold out.

April 7, 2019

On Friday, the S&P 500 and Toronto were each up 0.5%.

Notable gainers included: WSP Global, up 2.3%; TFI International, up 2.1% and Linamar, up 1.7%.

Statistics Canada released another of its volatile jobs reports, this time indicating little change in March. Headlines spoke of 7,000 jobs lost in March but that is basically unchanged when you consider the statistical error level and the fact that the number of people employed is 18.9 million, A difference of 7000 in a population of 18.9 million is basically below the accuracy of the measuring device. It’s the equivalent of a 175 pound person losing one ounce of weight. The results are probably more reliable over longer periods and they indicate strong gains in the first three months of 2019 as well as over the past 12 months. The unemployment rate remains very low (by historical standards) at 5.8% for Canada. Alberta was measured at 6.9% unemployment (of the population that is either working or actively looking for work – which is defined as the labour force) which is high by historical standards for Alberta.

The latest rail-car loading report (from Wednesday) shows Canadian rail car loadings running very strong. The latest week was particularly strong. In contrast, rail car traffic in the U.S. has been running noticeably under the 2018 levels. Most likely, CN and CP will report good results for Q1.

StAntec Updated April 7, 2019

Stantec is updated and rated Buy at $32.64. Historically, Stantec has been a strong growth-by-acquisition company. However, the stock has been relatively flat for the past four years. Initially, this was due to the impact of lower oil prices which slowed its business. Then, in 2016 it made a very large acquisition which came with a “Construction Services” division that proved to be very problematic. Stantec divested this at a loss in late 2018. Now it is once again a pure-play fee-for-service company. It appears to have good sales and earnings momentum entering 2019.

April 4, 2019

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

Toll Brothers rose 1.9%.

Shopify was down 4.9% after a short seller report came out. That’s really not much of a drop considering how fast this stock has risen and considering its high multiples to sales.

Apparently there was some progress on a U.S. / China trade deal after the China’s number 2 man met with Trump. That could boost markets tomorrow – or maybe not since it was already expected – futures markets are little changed this evening.

Regarding interest rates: Fortis Inc. just announced it will buy back up to U.S. $400 million of its 3.055% notes due in 2026. In part this is because it just sold and asset and so perhaps has spare cash. Fortis is a growth company and so it is a bit remarkable that it feels that it it would rather not have the use of $400 million for the next seven years at a rate of 3.055%. In fact they are paying a premium of $30 per $1000 to avoid having continue to borrow this $400 million at 3.055%. This suggests that Fortis has a very low cost of borrowing and they probably don’t see the cost of borrowing rising much anytime soon.

I attended the annual meeting of Canadian Western bank today. These annual meetings are largely perfunctory and scripted. With rare exception the annual meetings of large companies are almost a charade. I am not “picking on” CWB, this is just the way things are done. 12 nominees were running for 12 available spots on the Board. So, they all got in! The Chairman followed the script by asking if there were any other nominees from the room. Of course none were expected and none were nominated. I believe that almost all of the votes would have been cast in advance of the meeting. (Mine was) Most retail investors are not “registered” owners and I believe must vote by proxy which is typically done in advance of the meeting. Registered shareholders could vote at the meeting and it looked to me like at least three did so at the appointed time during the meeting. There were likely more registered owners who voted just before the meeting started.

The CFO and The CEO both gave good presentations highlighting the strong record of CWB. This Bank has a very strong track record. It’s ROE in 2018 was 11.9% and they target 12 to 15%. They have not lost money in any quarter in over 25 years. Despite that, the shares are trading at only just over book value. As Buffett would say, if you wanted to start a new bank and fight for market share it would cost you book value (plus more in startup expenses). Here you can simply buy an already established bank for very little over book value. I would certainly expect this to be a good investment at that price over the medium to longer term. The very near term is harder to say. If I did not already have a large exposure to CWB I would want to buy more at this price.

After the management presentations there was a chance to ask questions. Only four were asked. It seems people must attend these meeting more to socialise than to learn anything.

CRH Medical updated April 4, 2019

CRH Medical is updated and rates Speculative Buy at U.S. $2.71 or CAN $3.59.

This Canadian company started with a patented hemorrhoid banding product (of all things) that it was successfully selling to many of the Gastrointestinal physicians (GIs) in the U.S. It then decided to get into the business of providing anesthetic services to these Gastrointesinal physicians. It got into that business by selling shares and making a large transformational acquisition in 2014. Its strategy then became to be a growth-by-acquisition company by acquiring existing anesthetic service businesses from physicians. Often, it acquires 51% of the practice so that the physicians can both receive cash and retain substantial ownership. The growth strategy has worked well except that as announced in 2017 and implemented on January 1, 2018 there was a government-mandated reduction to the fees it can charge. This resulted in significant headwinds and uncertainty in 2018. But revenue per share and adjusted earnings per share continued to increase despite the headwind in 2018. And the impact of the lower prices has now been “lapped” which should pave the way for noticeable growth in 2019. The company indicates that it currently has no competitors in this business of aggregating the anesthetic practices of GI clinics. It is a high margin business and CRH benefits from its scale.

The share price has been volatile and, in retrospect, it overshot the mark in 2016 and then basically crashed in 2017 due to having been probably over-valued and due to the announced fee reductions. Despite having been quite successful in dealing with the 2018 headwinds, the stock price is currently at about the same level as it was in early 2018 and is down substantially from the 52 week high reached last September. This is a small company and should be considered somewhat speculative and is not suitable to be large percentage of a portfolio. But given its growth plans and current price is may have good upside.

I increased my position in this company by one third today but it remains only 1.3% of my portfolio.

April 3, 2019

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

Toll Brothers was up 1.4%. TFI International was up 1.7%.

CRH Medical was down 1.9%. Our report for CRH will be updated tomorrow and rated probably Speculative Buy. I will likely add to my position tomorrow.

Melcor Developments was down 1.9% but that was on very low volume (even by its standards). Checking insider trading I note that Melcor has continued to buy back shares at its small allowed rate of 1262 shares per day. I also see that a long-time director reduced his position by about one third in late March after earnings came out. That is disappointing to see. It could be a negative signal. Melcor is very cheap in relation to asset value but 2019 could certainly be very weak in terms of sales of residential building lots in Alberta. Still, the population of Alberta was up 1.6% in 2018 which provides some support for home building.

Alberta’s economic dashboard is showing a lot of red figures and Alberta may currently have slipped back into recession. Hopefully the election, recently higher oil prices, and hopefully some progress on pipelines will get the economy growing again soon.

April 2, 2019

Although the DOW was down 79 points, Tuesday ended relatively flat with the S&P 500 virtually unchanged and Toronto up 0.2%.

Constellation Software was up 2.7% while Shopify was down 2.0%.

Figures for March auto sales were released and there was an overall decline of 2,5% in light vehicle sales versus March of 2018. This is the 13th consecutive month of lower year-over-year sales. Still, March of 2019 was the third best March on record beaten only by 2017 and 2018. Fiat Chrysler had another bad month with sales down 11.5%. GM was even worse with sales down 18.4%. Ford was up 7.2%. Honda was up 12.0% and Hyundai was up 8.8%. April will be an easier comparable and so perhaps the

Once again, “light trucks” (which actually include even small SUVs) gained share and now represent 74% of sales volume.

April 1, 2019

Monday was as strong day for the markets with the S&P 500 index up 1.2% and Toronto up 0.8%.

Among the gainers were:

BHP Billiton – up 3.0% for the BBL shares on New York
Canadian Western Bank, up 2.6%.
FedEx, up 2.8%.
Dollarama, up 6.1%
American Express, up 2.2%
AutoCanada, up 2.9%
TFI International, up 2.6% and has announced another modest acquisition
CRH Medical, up 3.4% in Toronto
Linamar, up 2.2%

For those interested in rate rest preferred shares: Canadian Western Bank today announced the new reset distributions on CWB.PR.B Series 5. The timing of the reset is fortuitous for CWB in that it comes after the Bank of Canada five year bond yield has fallen from a recent high of almost 2.5% of last October to a level of 1.54% at noon today. The reset distribution on these pref shares will be $1.07525 per year or 4.301% of $25. Since these shares closed today at $19.10 this is a yield of 5.63% of that price. Alternatively, those holding these shares can (up until April 15th) elect to convert to a floating rate option that will pay $0.27525 in the initial quarter or an annualized yield of 4.404% on $25 or 5.764% of the current $19.10 price. But this second option will float with three month T-bill rates.

It is unusual that the floating yield option here, at least initially, is higher than the new five year fixed rate. That is because the three month treasury bill yield is currently slightly higher than the 5 year bond yield (Inverted yield curve). Either option might be considered reasonably attractive. Choosing the floating option might make sense if you expect the 3 month treasury yield to rise and not fall over the next five years.

It will be interesting to see what percentage of the holders of these shares choose the fixed and floating options. In either case, CWB is not going to redeem them and they will continue to trade in the market. (Although if too few chose the floating option or too few choose the fixed option then only the more popular option will continue.) I think staying with the fixed five year distribution might make the most sense.

March 28, 2019

Thursday was a mostly positive day in the markets with the S&P 500 up 0.4% and Toronto up 0.1%.

Gainers included CN Rail up 1.6%, Constellation Software up 1.7%, Starbucks up 1.7% and Alimentation Couche-Tard up 1.3% to a new all-time high.

Stocks going the other way included Toll Brothers down 2.0% and AutoCanada down 2.75%.

When it comes to the Consumer Price Index, many people are skeptical of the often low number reported by Statistics Canada. They use a “basket” of goods, which, since it is an average tends not to match the actual basket and therefore the actual inflation experiences by any particular person. Also, I think people tend to notice price increases a lot more than they notice price declines.

Statistics Canada has a new CPI Data Visualization Tool. This is a very neat and slick tool. On the left it show you graphically, the weight of all the items in the basket (and by hovering you can see the weight numerically). On the right it shows the percentage CPI in total and for each item in the basket as you hover over it. It also gives this by province. Another part of the tool allows you to see the inflation rate going back as far as 1914 for each item in the basket. This tool is well worth checking out. It’s very informative!

March 27, 2019

Wednesday was generally negative in the markets but some of our top picks did well.

The S&P 500 was down 0.5% and Toronto was down 0.1%.

But Couche-Tard was up 3.0%; Toll Brothers was up 2.0%, Melcor Developments was up 3.5%.

Also, Andrew Peller was up 3.7%.

I sold out of my position in BHP Billiton. As a resource stock it was not the type of stock I normally follow. It was introduced on January 27, 2018 at $50 for the BHP ADR in New York and $44.80 for the BBL ADR shares in New York which are supposed to be economically equivalent but for some reason trade at a lower price. It closed today at $47.57 for the BBL shares. It also paid total dividends of $5.50 which included a special dividend of $2.04. The total return was about 18% in the 14 months. It tends to be volatile.

March 26, 2019

Tuesday was a positive day in the markets with the S&P 500 up 0.7% and Toronto up 0.6%.

Most of the stocks on our list were higher. Notably, Constellation Software was up 2.6% and FedEx was up 1.8%.

Toll Brothers was about unchanged as there was mixed news on the U.S. housing front. Housing staters fell 8.6% in February and single family starts were down a hefty 17%. But sales of existing homes rose 11.8% and mortgage rates are at their lowest level in a year. Housing starts are often volatile and these later two factors may suggest that the the drop in single family home starts in February will prove temporary. Home builder Lennar reports earnings tomorrow, Wednesday and its results will likely impact Toll’s price.

After the close, AutoCanada announced it had arranged the sale and lease back of two additional dealerships. This generated $24 million of cash but comes with the obligation to lease the sites back for the next 19 years. In theory this does not really add any value since the price received presumably simply reflects the value of the lease obligation. In practice there may be some benefit if the REIT that purchased the dealership has access to low-cost capital due to its stability. These transactions also provide a way to leverage AutoCanada’s business as they become an asset-lighter company. This can work out very well if they become more profitable. Or it could become dangerous if revenues fall and they then have lease obligations as opposed to owned assets. I am not sure what to think of this but I hope that the new management knows what they are doing. It is another sign that this new management is very active in making changes.

March 25, 2019

Monday was a relatively quit day in the markets with the S&P 500 down 0.1% and Toronto down 0.15%. You would never know that any big news (the Mueller Report) came out over the weekend.

Couche-Tard was up 3.3% and Toll Brothers was up 2.8%.

I was interested today to see that Emera (parent company of Nova Scotia Power) is selling a $1.3 billion Maine utility to ENMAX which is the power utility owned by and serving the City of Calgary. Canadian utilities have had a lot of success in buying U.S. utilities. Most notably Fortis Inc. has a great track record and Emera has also done well. I worked for many years in a career involving utility regulation. I never quite understood how the Canadian utilities could apparently out-bid U.S. utilities for regulated U.S. utilities. It might have something to do with Canadian utilities trading at high P/E multiples due to their high dividends and due to the Canadian dividend tax credit and also due to a regulatory system in Canada that was probably less risky for the utilities. In addition, in regulatory hearings we learned that Canadian utilities buying U.S. utilities could apparently deduct the same interest on both sides of the border! In regulated utilities, the customers directly cover the deemed income tax expense. Part of the “game” is typically to collect revenue for that income tax “expense” but then not really have to pay it all due to tax deductions at the parent level and other tax-saving initiatives.

There was no indication of what gain, Emera would book on this sale but I suspect it will be a substantial gain. ENMAX is financing the purchase entirely with debt. Meanwhile they will likely argue in front of regulators that a utility needs to paid as if it has financed about 40 to 50% of the cost with equity. Essentially ENMAX will want to be paid about a 10% return on equity on about half of the book value rate base acquired while financing it with debt closer to 3%. The fact that ENMAX is owned by the City of Calgary may allow it to borrow very cheaply.

Emera would have been getting paid a regulated return on the book value of the utility (less any goodwill that Emera paid when it acquired the Maine utility). But it will no-doubt have sold the utility at an amount substantially above the regulated book rate base value. So, ENMAX will likely be paying substantial goodwill on which it will earn nothing. But the regulated return on the rate base may be sufficient to make the overall purchase price paid worthwhile.

I suspect Emera has got a good deal with this sale but it might work out well for ENMAX too with its approach of financing with cheap debt.

March 24, 2019

As of tomorrow Monday, the focus will be on how the market reacts to the Mueller report. Trump was not really fully exonerated – though he claims he was – but there was no proof of collusion and insufficient proof of obstruction of Justice. The market may take this as a very positive sign even though the Democrats are not about to drop their various inquires. As of early Sunday evening, pre-markets are up modestly.

As of Thursday, the market was focused on the benefits of lower-for-longer interest rates and not on the various signals that a recession might be coming soon to America.

However, on Friday as the yield curve inverted (The ten year yield ended the day slightly lower than even a one month treasury bill!) the market apparently began to fear recession and the S&P 500 was down 1.9% and Toronto was down 1.0%.

Some of the notable losses included FedEx down 2.8%, Amazon down 3.0%, and CRH Medical down 4.9%.

Among the few stocks with gains were: Couche Tard, up 1.5%, Riocan up 1.3% and Fortis, up 0.8%.

With the yield on Canadian government debt being roughly 1.6% to 1.7% for everything from 3 month treasury bills all the way to ten year bonds (and 30 year bonds around 2.0%) dividend stocks paying 4% and higher should be increasingly attractive – except if their prices are expected to fall due to recession or other reasons. Retail investors can also invest in GICs paying about 2.0% to 2.5% (For example, available at TD Direct) and somewhat higher at some smaller financial institutions not available through the bank discount brokers.

As an example of attractive dividends, the Boston Pizza units are now yielding 8.4% as they fell 2.4% to $16.41. There are certainly no guarantees but those units are likely to continue to pay the current $1.38 per year distribution. However, there is some risk of a modest cut of 5% or so in the distribution because the trailing payout ratio is 104%. But management appears to believe that they can maintain the ratio above 100% using cash on hand and that same-store-sales will slowly rise to bring the ratio back down to a sustainable 100% or less. There is always some risk that BP will lose market share and suffer same-store sales declines necessitating a distribution cut or that recession would cause that to happen at least temporarily. But overall, it seems likely that this 8.4% yield investment will do far better than guaranteed fixed income investments paying mostly 2% or less. Investors have had quite a bad experience with these units over the past 18 months as the price declined from highs over $23. It may be that this bad experience is scaring investors off from what appears to be a very attractive yield.

Somewhat similar comments apply to rate reset preferred shares. If interest rates in general are to remain lower-for-longer then the yields on rate resets should be looking more attractive even if they will reset at, for example, 5.6% of the current price for the Canadian Western Bank rate reset on our list. Investors have been repeatedly “burned” on rate reset shares as their prices fell due partly due to lower interest rates at times but mostly due to the market “demanding” higher spreads over the 5 year government bond. It may be that this bad experience has pushed the rate resets down to attractive prices. They are probably still best suited to those committed to holding for the long term for the yield and especially as a component of a taxable account.

I had a chance to talk to a local Edmonton BP owner on Friday. He does not expect boom times to return to his Edmonton restaurant but instead seems to expect stable results. It appears that he makes quite a good living from this one location. He is facing a mandated renovation that will cost towards $500,000 and he was not complaining about that.

March 21, 2019

On Thursday, the S&P 500 was up 1.1% as the market apparently decided (for the moment at leeast) that the benefits of lower-for-longer interest rates out weighted the risk that this was signalling a recession ahead. Toronto was up 0.5%.

Apple Inc. was up a hefty 3.7% to take the number one spot as the most valuable American company.

Toll Brothers was up 2.5%.

Shopify was up 2.4%. FedEx recovered 2.2%. TFI International recovered 2.3%.

Statistics Canada reported construction investment in January. The numbers can be hard to interpret since the main table was not seasonally adjusted. Overall, the results showed surprising growth.

March 20, 2019

Wednesday’s session saw the S&P 500 down 0.3% and Toronto down 0.1%.

FedEx was down 3.5% after reporting earnings.

Amazon was up another 2.0% which is certainly impressive for such a large company.

As foreshadowed yesterday, I did add to my Couche-Tard position. This is a great company and I would not mind it being a larger percentage of my portfolio.

TFI International was down 3.6% and seeing the decline I added to my position in this well-run company.

I don’t see any need to hurry to deploy cash but decided to add to these two at this time.

The Fed signaled that it will not likely raise interest rates this year. This is positive for stocks except to the extent that it is seen as a being due to weakness in the economy.

March 19, 2019

Tuesday was an eventful day for market news. North American stock market were positive earlier in the day but ended weak. The S&P 500 was about unchanged while Toronto was down 0.4%.

AutoCanada was up 3.6%. It has, around 10 analysts covering it and based on the stock price it appears they generally remain supportive. I looked for updated reports at RBC Direct and TD Direct which are the two that I have access to and neither of these two appear to be covering the company.

CN Rail was down 2.0%. Toll Brothers was down 1.9%. CRH Medical was down 3.4%.

Couche-Tard was down 2.5%. Then, after the close it released what appears to be blow-out earnings . Adjusted earnings per share almost doubled. But apparently they were expected to slightly more than double. They raised their small dividend by 25%. This is a great company and I am inclined to add to my position especially on any decline.

FedEx released what was apparently disappointing earnings and a disappointing outlook. FedEx mentioned
“weaker global trade growth” but headlines seem to interpret this as weaker and slower global trade – which is not quite what is says – but is more newsworthy.

Statistics Canada reported sales at food services and drinking places in January. The release was confusing with mixed messages. first, it said that on a seasonally adjusted basis, January was down 1.0% with full service restaurants down 2.1%. But then they went on with a headline saying it was a strong start to the year. In fact, that include a handy table showing the year over year January change and it was UP 5.5% with full service restaurants up 5.7% and drinking places up a huge 8.3%! They call these numbers seasonally adjusted but there really should be no seasonal adjustment to compare a January to a January but I guess they are comparing last year’s adjusted number to this year’s adjusted number and so that could introduce an error. Digging into the NOT seasonally adjusted number, I was only able to find it for the Canadian total and not for full-service and drinking places. The total increase was 5.2% which is not far different from their seasonally adjusted 5.5%.

Overall, I would be suspect of the claimed decline from December to January due to the difficulty of seasonal adjustment. In terms of consumer behavior, December is vastly different than January and so I imagine a big (and error prone) seasonal adjustment is needed. What is important is that there was a big year-over-year increase in January. In part that will be due to a larger number of restaurants. But an average restaurant must have seen increased sales and that bodes well for Boston Pizza as long as they are keeping up with industry averages. 3.5% of the 5.5% year-over-year increase was simply due to price increases. But for the Boston Pizza Royalty Income Fund, that still leads to increased franchise revenue collected as long as higher prices do not lead to to fewer customers. For the industry as whole sales were up 5.5% while prices were up 3.5% suggesting that customer volumes increase (albeit counting new restaurants).

The federal budget included measures to assist first time homebuyers and gave more assistance if it is a new home. This could spur an increase in housing starts or at least stem the decline in housing starts.

March 18, 2019

On Monday, the S&P 500 was up 0.4% and Toronto was up 0.7%.

FedEx was up 2.5%.

Now that almost all (97.5%) companies have reported their 2018 earnings, the final GAAP earnings for the S&P 500 index came in at $132.08. That is 20% higher than the 2017 earnings with the Trump tax cuts responsible for most of the gain. Last year the projection were for about a 27% increase which I thought was very optimistic. As recently as about six weeks ago the projection was that the 2018 growth would be 27%. The fact that the final number is coming in closer to 20% has not been much remarked upon in the news to my knowledge. Operating earnings were up 22%. For 2019 the current projection is that GAAP earnings will rise another 17% while operating earnings are projected to rise 9%. These projections tend to be optimistic. In addition to the forecast of higher earnings the market is being pushed up by projections that interest rates will continue to stay lower-for-longer. Ultra low interest rates definitely support P/E levels that are higher than the historical averages.

Statistics Canada released the monthly report of large retailer sales for January. For whatever reason on this report they do not provide any written comments on the results nor do they provide a table showing the month over month change (which would have to be seasonally adjusted) or the year over year figure. So, this one requires some work to make any sense of it. I looked at the change form January 18 to January 19 and saw that every category was up except fuel sales were down noticeably which would be due to a price drop. Excluding fuel, average sales were up a robust 2.9%. Other than fuel, all of the other 13 categories had increased sales. That’s impressive even though some of that would be simply due to inflation.

March 17, 2019

On Friday, the S&P 500 was up 0.5% and Toronto was up 0.3%.

There were no particularly large moves in the stocks on our list but Amazon was up 1.5% and CRH Medical was down 2.3%.

In economic news, Canada’s manufacturing sales rose more than expected in January which came after three months of declines.

AutoCanada rated Sell – March 17, 2019

AutoCanada is updated and rated Sell. In the previous update I had noted that the value ratios would suggest a sell unless earnings were expected to increase. And I did expect an increase in 2019 (and possibly in Q4 2018) due to the efforts of the new management and with recent write-offs and restructuring charges hopefully behind them. However, with the Q4 report it has become more clear that the U.S. dealerships are a huge millstone since the best that they are hoping for is to bring these UP to about an operating break-even point by the end of 2019. They have now written off $61 million of the $132 million paid for the U.S. dealerships just last Spring. All of the U.S. locations are leased. Not only that but the company has recorded $32.5 million as a liability due the the U.S. leases being unfavorable. And with those dealerships operating at a loss there is the potential for more write-offs as well as the ongoing losses. If it were not for the U.S. operations, AutoCanada would probably be under-valued. But in the face of the U.S. losses and despite probable improvements on the Canadian side, the stock no longer looks like a reasonable investment. Note that the CEO who made that acquisition was (thankfully) ousted shortly afterwards.

I am holding onto abut half of the shares that I owned in AutoCanada at the start of this year. That may not be very wise given the state of affairs. But I was not prepared to give up entirely just yet.

AutoCanada turned out to be a very poor investment. Initially this was due to slower auto sales in Canada. That could quite possibly have been over-come. But the U.S. acquisition for $132 million turned out be an absolutely disastrous purchase. They have already written off $61 million on the purchase. While a note to the financial statements appears to suggest that these dealerships still have a total value over $100 million, the fact that they are making an operating loss might suggest a true value much closer to zero.

In terms of what happened here, I believe I under estimated the significance of certain events over the years such as the departure of the founder, other management departures and Board member departures as well as the depth of the downturn in sales in Alberta as well as the sharp deterioration in Chrysler’s sales that began near the start of 2018. But I would never have guessed however that the $132 million U.S. purchase was such a disaster. When it comes to acquisitions, I generally assume management knows what they are doing unless they have a poor history in that regard. Also, in acquisitions there is usually no information available to second guess management on the value being paid.

AutoCanaada comment – March 15 1:45pm eastern time

I sold what amounted to 43% of my AutoCanada position today.

As mentioned in my previous post, the Q4 earnings were quite awful. I am surprised that the stock is only down 5.5% at the moment. Earlier today it was briefly down as much as 18%.

I had accumulated far too large a position in this company and it has become increasingly speculative. I was quite reluctant to sell at a loss and hoped the new management could turn things around. The problems in their U.S. operations (purchased less a year ago) continue to be revealed to even worse. They indicate that traction in their Canadian turn-around strategy will not be very much apparent until Q2 is reported. This is not an investment that should be allowed to be a material percentage of a portfolio. If I did not own any, I would not see any reason to be a buyer at this time. I will likely hang onto a good portion of what I have left but that may be out of stubbornness more than anything.

March 14, 2019

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

The market took little notice of Melcor’s earnings as Melcor rose 0.5%.

CRH Medical, which also released earnings yesterday was down 3.2%.

AutoCanada released its Q4 results after the close (sometime after 7 pm mountain time, which was annoyingly late). The results were quite awful. The U.S. dealerships in particular are money losers. There were also two resignations mentioned, including their new chief financial officer. Management expressed optimism for “very material improvements” in 2019 but also noted several headwinds. They still talk about making acquisitions but the reality appears to be that they are in survival mode at this point. Unfortunately, it seems likely that the stock could suffer another significant decline on this news.

WSP Global reported very strong earnings growth for Q4 earnings and plans to continue its strong growth.

March 13, 2019

Wednesday was another strong day for the U.S. stock market with the S&P 500 up 0.7%. Toronto was up just 0.1%.

Nothing on my list was up as much as 2.0% but a number were up over 1%.

Dollarama was down 2.75%.

There have been a lot of large corporate acquisitions in the news this week including, most notably, Brookfield Asset Management’s $4.8 billion acquisition of 62% of Oaktree Capital. There were other acquisition announcements this week of over $500 million in several sectors including mining. To me, this suggests that corporations are willing to pay high prices for assets and suggests that what Warren Buffett calls “animal spirits” are running high. This is positive for stock prices.

Melcor Development released 2018 results after thee close today. As expected Q4 lot sales in Canada were down versus last year and were down 24% overall for the year. But they sold a good number of lots in the U.S. including some that they developed and some that they had bought as finished lots. Overall the Q4 results were similar to last year which was a lot better than I thought it might be. They do expect weak lot sales in Canada in 2019. But they are very well positioned to weather a downturn. The book value per share is now $32.01 which is 147% higher than the stock price of $12.93. Roughly half of the assets are income producing. The land assets are certainly illiquid but they are also of a very “hard” nature. Based on past experience, I don’t particularly expect the market to take much notice of the earnings or outlook.

CRH Medical also reported Q4 and 2018 earnings. These earnings looked good to me but I saw a headline that suggests they were about equal to expectations.

March 12, 2019

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

CRH Medical was up 6.5%. It will report earnings tomorrow, after the close.

Fortis Inc., was up 1.5%. Costco was up 1.4%.

Linamar was down 4.4% after reporting earnings and lower “guidance” for 2019. Linamar expects earnings to grow in the single digits in 2019. It is trading at under six times earnings and is trading at a modest (about 8%) discount to book value while earning an ROE of about 18%. The stock appears to be trading as if earnings will decrease (and stay down) rather than merely slow.

Melcor Developments will report tomorrow, after close. Lot sales this quarter were likely lower unless they sold a significant amount of lots in Arizona. The outlook for lot sales in 2019 is likely to be quite weak. Their REIT business. And their building development activities have also been fairly steady. The stock price reflects a lot of pessimism plus a lack of interest from investors.

March 12, 2019 10:20 am eastern

Linamar is down 4.5% to $48.52 after releasing Q4 earnings that were good but which included lowering their revenue growth outlook for 2019 to mid single digits while they expect earnings to grow high signal digits. It appeared to me that the stock was already pricing in basically no growth over perhaps the next five years. In reality, while earnings can go down in any one year, it seems very likely to continue to grow earnings over medium and longer periods of time. The stock looks cheap but it may stay that way until better growth resumes. It is also possible that stock buy backs will be undertaken which would assist in growing earnings per share.

The situation with the Boeing 737 max is potentially disruptive to air travel. Air Canada and West Jet fly these planes. There is a software change in the works that will decrease the need to pilots to remember detailed procedures in certain circumstances. I am not at all tempted to buy Boeing on this dip.

When it comes to the public finding out what kind of plane they are booked on, I have long wondered why we don’t see that when we are choosing a flight online. I have always felt that I would pay a premium to avoid flying on either a very old or perhaps also a very new aircraft or, as in this case, an air plane that may have some issues at the moment.

March 11, 2019

Markets were higher on Monday with the S&P 500 up a hefty 1.5% and Toronto up 0.7%

Among the gainers were: Apple, up 3.5%; Canadian Western Bank, up 2.0%, FedEx, up 2.7%; Toll Brothers up 2.2%, Visa up 2.2%; and Amazon, up 3.1%.

Linamar reported Q4 and 2018 earnings after the close. Apparently, slightly higher than expected although a little lower than last year’s Q4 on a normalized basis. Analysts will likely be more concerned about Linamar’s outlook. The stock appears to be very cheap but investors worry about slowing auto sales and about trade disputes.

Shopify rose another 5.5% to $U.S. 200.30. (I will use the U.S. price since it reports in U.S. dollars.) This was because it was announced it will become part of the TSX 60 index. That means many ETFs will be obligated to buy Shopify and many other mutual funds and investors who seek to mimic the TSX 60 will do so as well. There can be no doubt that more buyers, and especially buyers who must buy, pushes up the price of a stock. But fundamentally, that seems like a poor reason for a price increase. I mentioned before that by far the bulk of Shopify’s assets are actually held in cash and marketable securities. The cash and marketable securities amount to U.S. $18.29 per share. So, we might say that the remaining $182 per share represents the value of Shopify’s business. The book value equity in that business minus the $18.29 per share value of the cash adn securities (and I will add in their accumulated losses on the basis that the losses were mostly meant to be investments in the future) is just $2.98 per share. It may well be that Shopify’s future earnings will more than justify its current share price. But it is extremely richly valued in relation to book value and richly valued in realtion to revenues (run rate of revenues $12.77 per share but rising rapidly). The stock has been on a sharp uptrend. But it will likely have its downturns as well. I had added Shopify to the list and analysed it for information but was not prepared to put a rating on it other than “Speculative”.

Some of the rate reset preferred shares were down. The Enbridge shares on our list ENB.PF.A are down to $16.65 (asking price). At that price the yield is 6.6% ($1.10 per year). They will reset on December 1. If the five year Canada bond stays at its current yield of 1.64% the reset will be 1.64% plus the reset spread of 2.66 %to total 4.3% of $25 or $1.075 to yield about 6.5% at the current price. Even though rates are still low, the “going” or market rate on rate reset preferred is now about 5.2% for the big banks and probably around 6.5% for the likes of Enbridge.

If an investor is looking for cash yield, especially in a taxable account, these shares are worth considering. It is possible that they could rise in price if the market becomes more convinced that rates will stay lower for longer. For example GIC rates could slip back which could cause the market yield on rate resets to fall (and their prices to rise). Of course, investors in the past bought these things for yield back when the market yield on bank rate resets was around 4%. Despite buying for yield and even if committed to holding for the long term, it was very disappointing to see the capital losses that have occurred.

Meanwhile Canadian Western Bank announced that it will not be redeeming its CWB.PR.B shares when the five-year anniversary date arrives on April 30. I did not expect them to renew these. Why would they redeem shares that are set to reset at (2.76 +1.64) 4.4%. when they just had to pay 6.0% on a recent issue of rate reset shares? The $19.25 price of these shares suggests a yield after the reset of 5.7%. The discounted price of these shares reflects the fact that the pending reset dividend at 4.4% of $25 is below market. If the market yield for CWB rate resets is 6.0%, then these shares should perhaps be a little cheaper yet. CWB reminded people today that they have the option to convert these to floating rate shares. The floating rate will be the three month Canada T-Bill rate plus 2.76% and would float quarterly. The 3 month T-Bill is currently very similar to the 5 year Canada bond yield. That would mean that the floating rate shares would start out paying just around precisely the same rate as the five year fixed reset. In this circumstance the floating rate option might be the better option. Certainly it is is you expect rates to rise over the next five years. That might explain why these shares are trading to yield “only” 5.7% upon reset. That is, the price might be a little lower than $19.25 if not for the option to convert to quarterly floating at the end of April.

March 10, 2018

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

Costco was up 5.1% after reporting earnings.

AutoCanada was up 2.3%. It’s scheduled to release earnings on Thursday, after the close. Given its troubles in 2018 and given it is trying to right the ship, it seems like anybody’s guess as to whether its earnings release will give much comfort to the market or will instead contain more unexpected bad news. The troubles in 2018 were partly related to weaker Canadian auto sales generally and the disappointing news regarding Alberta’s economy. But it also suffered a huge self-inflicted wound with its strange botched purchase of U.S. dealerships that led to a big write-off within mere weeks of the purchase. That debacle is why the company is under new management.

As of Sunday evening, markets appear set to open moderately lower.

JobS REPORT COMMENT – March 8, 2019 11:30 am eastern

Statistics Canada reports (I probably should say claims) that Canada added 56,000 jobs in February driven by full-time job gains and that this came on top of strong gains in January.

Once again I would take this with a huge grain of salt. Firstly, Statistics Canada certainly reveals, but does not really high light that the statistical standard error is 29,000. Secondly, the 29,000 assumes that their survey represents a random sample. In an age where many people don’t have home phones (land lines) and vast numbers of people have unlisted or non-public numbers, it is presumably vastly more difficult to get a random sample than was the case decades ago. Thirdly, the numbers are seasonally adjusted and that is always subject to error and weather. Perhaps February historically sees an an average seasonal gain of say 20,000 jobs. But were the seasonal factors and weather average this year? Fourthly, it seems to me that the jobs report has simply been producing almost wild month-to-month swings for about two years now.

So far on BNN, I see them accepting the figure without stopping to ask how accurate it is. They take it as gospel that 56,000 jobs were added, as if it were a count based on some kind of records as opposed to what it is – a survey of only a sample of households. I believe it is a telephone survey and that once a household is in the survey they stay in for about six month, but I was unable to find a description of the survey this morning. Sample data is certainly fine. But anyone extrapolating the results of a sample tot he popualtion should make it clear that the result is not a hard number but rather an estimate with an error range around it.

March 7, 2019

Thursday was a weaker day in the markets with the S&P 500 down 0.8% while Toronto was down only 0.2%.

On the positive side, Toll Brothers was up 2.0%. And CN Rail was up 0.8% and has has been trending up steadily since the December 24 low.

FedEx was down 3.0%.

Canadian Western Bank was down 2.4% to $29.33 despite its good earnings report and dividend increase. CWB has a book value as of today of $27.30. So it is trading at a premium of only about 7% over book value. And on its book value it has recently been earning an ROE of about 12%. That’s good, although not great and it is lower than it was a few years ago. And CWB has not lost money in any quarter going back close to 30 years. The company is no longer touting that steak perhaps because such a streak is likely to end at some point especially as accounting rules have generally resulted in more volatile earnings and more often the requirement for various write-offs from time to time. And certainly CWB could suffer higher loan losses and even more so could face a period of lower growth. But if it is assumed that it can continue to earn something close to 12% on its book equity on average and if you can buy in at what is quite close to book value, then that is going to work out well over time. The dividend yield is 3.7% which is certainly not the highest dividend around. But it does beat the yield on a GIC and that dividend is extremely likely to keep rising over the years.

Now, admittedly CWB share holders have not seen a great return at all since the stock was close to $42 almost five years ago (just before oil prices went down from the high levels of early to mid 2014) . The thing is back then the book value was only about $19. The lesson here is that it is now apparent that buying CWB at twice book value or more was not such a great move. And I will admit that at the time I thought it was reasonable to pay twice book value given the ROE at the time. Going forward I will be more hesitant to pay, for example, twice book value for a bank. But having had a bad experience in paying twice book value then does not seem like a good reason to refuse to buy CWB today at 1.07 times book value, much less to sell at that price.

Rate reset preferred shares have once again been declining as the 5 year bank of Canada bond yield falls. The market is continuing to demand what could be called quite a large yield premium over the five year rate. That higher required “spread” and the lower 5 year bond have both been responsible for pushing down the price of rate reset preferred shares. As someone who tends to look to “buy low”, I would be tempted to perhaps buy some of the discounted rate reset shares despite the unhappy track record. They could have a place particularly in a portfolio that is designed to generate dividend yield in a taxable account.

March 7, 11:20 am eastern

(I was unable to make my usual post last evening due to a very rare server problem on the telus system where this website is hosted.)

Canadian Western bank was out with a good earnings report this morning and increased the dividend by 4% which was in addition to an earlier 4% for a total increase of 8% over last year. Loan loss provisions were up by a very small amount. The stock is down 1.0% despite the overall positive news. This could be explained by the general negative tone in today’s markets or just the fears of a slowing Canadian economy. The market does what it does with stock prices. If CWB can continue to deliver earnings increases and growth over time then the stock price must eventually follow.

With the lower Canadian dollar yesterday, I thought of moving some U.S. cash back to the Canadian side. I had some U.S. cash in my corporate investment account and I have started the process of moving that over using the Norbert Gambit which I mentioned many times. The first step was to use the cash to buy DLR.u which is a fund of U.S. cash that trades on Toronto. The same fund of U.S. dollars trades in Toronto in both U.S. dollars (DLR.u) and Canadian dollars (DLR). Now that I have bought DLR.u in the U.S side of my corporate account I will wait a couple days until it “settles” and then ask TD Direct to journal it over to the Canadian side (I will check because I may be able to do that online now rather than calling) where I can sell the U.S. dollars in Canadian dollars as DLR. If I was eager to lock in the exchange rate, TD can journal it over without waiting the few days but there is a charge of around $45 U.S.. So, I just decided to wait until it settles and take my chances on the exchange rate.

Another reason I wanted to move this corporate cash was to stay under $100,000 Canadian worth of U.S. assets in my corporate account. Going over $100k Canadian worth of U.S. assets triggers reporting requirements with Canada Revenue. I have found that Turbo Tax corporate did a poor job of helping meet that reporting requirement in the past and there are penalties if it is not reported properly. Unless I wanted to have well over $100k in U.S. assets it does seem worth the bother and I am going to stay under $100k for now at least. There is a similar reporting requirement for individual investment accounts but not for the RRSP accounts. Therefore, if we have over $100k in U.S. investments it is far simpler to keep that in the RRSP account. In addition to the having to report being over the $100k, the tax reporting requirements just to deal with exchange rate fluctuations in any taxable U.S. account that Canadians hold are tedious especially if you do any amount of trading. On, that basis it may be best to try to keep all your U.S. investment cash and securities in the RRSP if you are in a position of having an RRSP that represents half or more of your total investments.

I will also mention an interesting aspect of my trade to buy DLR.u. Yesterday I placed the trade to buy an amount of DLR that was not in even hundreds. I was buying XX70 shares. I decided to get a bit cute and not pay the offer which was $10.08 per DLR. Instead I made a limit order at $10.07. These units are extremely stable so the price does not fluctuate more than about a penny over short periods of time. Anyhow the trade for even lots went through so I got XX00 shares at $10.07. But the trade for the left over 70 shares did not go through. I canceled that today to avoid paying a $10 fee on $749 worth of DLR. Not a big deal if I had paid the $10 but it was interesting to see that the odd lot did not go through. In my experience most of the time odd lots are traded easily. Certainly if I had bid the offer at $10.08 it would have gone through.

March 5, 2019

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

There was not much movement in most of the stocks on our list.

But AutoCanada slipped 2.7% and Toll Brothers was down 2.3%. Dollarama was up 2.4%.

Regarding interest rates. It appears that this latest round of interest rates hikes has once again fizzled out without rates getting back to any definition of “normal. The 5 year Canada bond yield is at 1.75%. That’s nicely above the lows of a few years ago but also sharply lower than the near 2.5% of last Fall. The 10 year Canada bond yield is at 1.86%. Meanwhile if a stock has a P/E of 20 (which historically would be considered high and expensive) that is an earnings yield of 5%. It’s not a dividend yield but if it is a good company and it is earning 5% on the price you pay and will retain some or all of the earnings for growth, it should do well. And very often the ROE on the retained earnings is over 10%. Buffett would say that on average a stock with a P/E of 20 is very likely to be a better investment than a bond at 1.9%. In fact vast numbers of stocks have a cash dividend yield well higher than the 1.86% of the ten year bond and that dividend is extremely likely to grow. But of course the bond has the advantage of certainty. If the expectation for higher interest rates has diminished then that supports higher P/E ratios for stocks.

I look at things like preferred shares paying 5% or more and Boston Pizza paying around 8% and it seems likely they will certainly do better than bonds. But as always there are risks and we have to put up with market value fluctuations even if the dividends are steady.

And also on interest rates, I saw today that HSBC is out with a 5 year mortgage rate at 2.99%. TD Bank is still paying 1.6% on TDB 8150 which is a sort of “high” interest account that I have access to in TD Direct. It seems quite likely that could decline.

Checking some insider trading (specifically buy-backs) for selected companies, I see that Melcor is continuing buying its little maximum of 1262 shares per day. Canadian Western bank only reports the buy backs monthly. They were buying back about 60,000 shares per day in December and up until January 22. I am fairly certain that the only reason they stopped is that they had completed the full amount of their announced buyback. They paid up to about $29.60 per share as the price rose in January. I will also mention that several CWB insiders grabbed some of the 6.0% rate reset preferred shares that CWB issued on January 29 and which I mentioned at that time.

I had mentioned previously that CRH Medical began a buyback program on October 19. They report it only monthly. I see they have continued to buy back shares steadily in January and February. The amounts per day vary. Recently the maximum is about 9,000 per day. Unfortunately, I also see some insider selling in December. In two cases they exercised 30,000 options and sold only 15,000 so that is not as bad as selling all 30,000. It may be nothing to be concerned about and fairly normal for executives to sell since they often get compensated with options as opposed to cash. But it is a case of buying shares with the company’s money, while selling some of your own…hmmm.

March 4, 2019

On Monday, the markets started out higher but ended lower with the S&P 500 down 0.4% and Toronto down 0.2%.

Dollarama was up 3.0%. Amazon was up 1.5%. Toll Brothers was up 1.2%.

I have to say Amazon is truly amazing. Last night at about 11:30 my son ordered a piece of equipment from Amazon. It arrived about 16 hours later (today at 3:30 pm) on our step. Due to Prime membership, there was no shipping charge. It must be largely due to technology that they can deliver that fast. As soon as you place an order automated systems kick in and the product is moving towards you virtually instantly.

Shopify was down 2.6% but remains very near its record high at $248 in Toronto and U.S. $186 in New York. I had added Shopify to the list on January 16 and provided my analysis but I had not put a rating on it. Shopify has tremendous growth but is not yet profitable on a GAAP basis. Let’s take a look at some numbers from its balance sheet which is in U.S. dollars. All figures below are in U.S. dollars.

Assets are $2.25 billion. Book equity is $2.09 billion. The market value is $20.63 billion. On that basis investors are paying $9.86 for every dollar of book value. That could certainly be considered expensive but probably not outrageously so for a tech company. But note that it has $1.97 million in cash and marketable securities. That part of the assets can’t be worth more than about that same $1.97 billion. So let’s subtract that $1.97 from the market value and the book equity. Now we have a book equity of $0.12 billion (equity in assets other than cash and marketable securities) and that is valued at $18.66 billion after we deduct the value of the cash and marketable securities. To be fair, I will also add back the $0.20 billion in accumulated losses since those losses were meant to be an investment. On that basis we have a total book equity value in asses other than the cash and securities (with the losses added back) of $0.32 billion which the market values at $18.66 billion. So, the market is valuing every dollar of equity invested in other than cash and marketable securities at $58 dollars. In effect, Shopify has turned every $1.00 invested in assets other than cash and marketable securities into $58 dollars. That is impressive. In the old days alchemists dreamed of turning lead into gold. This looks like today’s equivalent. The alchemy of successful tech investments. It ‘s one thing to turn a few dollars each into $58. It is quite another thing to turn each of $0.32 billion ($320 million dollars into $58 each!.

My point being, that while Shopify is very impressive it also looks extremely expensive on this basis.

Looked at another way, Shopify had revenues of $344 million in Q4. Annualized that would be $1.38 billion per year. Again, it is valued at $20.63 billion. That’s almost 15 times revenue. But of course revenues are growing rapidly. Still, it would seem to be a rich valuation.

I am not prepared to put a rating on Shopify but I will say it is speculative. It is “pricing in” a huge amount of future growth and profitability. And maybe it will achieve that.

I would be cautious investing too much in it. For one thing all it may take is a short-seller to come along and claim it is vastly over-valued and the price could easily fall.

But then again it has momentum and the support of investors.

This is the type of stock that Warren Buffett might put into the “too hard” basket. It is just very difficult to come up with a fair value for a company like this.

Pipelines and oil by rail economics – March 4, 2019 10:45 am eastern

Bad news on the pipeline front as Enbridge announced a delay in its Line 3 pipeline. Now expected to be operational sometime in the last half of next year rather than late this year. This was due to a new schedule for when U.S. State and federal permits are likely to be received. There was however some indication that at least the process for permitting has become more definite.

With this development, it is interesting to think about the economics of oil by rail.

When there is a temporary large discount on Canadian oil, independent shippers and the rail lines can arbitrage that by buying cheap in Alberta and selling high in the U.S.

Unlike the producers and the province in general, an independent shipper (and the rail roads) taking advantage of the arbitrage would want the differential to stay wide.

But if all the oil producers got together to ship by rail they would not mind if their action caused the differential to evaporate. But the oil industry is not allowed to get together as that would be collusion. And when just a few producers ship by rail it could end up narrowing the differential and all the oil producers that did not bother to invest in or risk shipping by rail get a windfall. In this circumstance it is difficult for producers acting independently to invest much in shipping oil by rail. What if they lock in two years of oil by rail shipments based on a wide discount in Alberta and then because of all the oil by rail shipping, the differential disappears? The producers that contracted for shipping by rail could lose money on the shipments while ALL producers gain from the lower differential.

In this circumstance the province doing the oil by rail makes sense. The provincial government can “win by losing”. That is if the province ships a large amount of oil by rail and the differential narrows they could lose money on the shipping. But they would likely more than make that up through higher income taxes, higher oil royalties and the general improvement in the economy.

This sets up as a rare case where it appears that government intervention may have been a good thing. But it is not without victims. The independent shipper who was arbitraging the price differential could be hurt drastically. Any producer that had locked in oil by rail may find that the shipping is no longer economic with the reduced differential caused by the provincial government doing a large amount of oil by rail shipments.

Latest Auto sales Report – March 2, 2019

Canadian auto sales in February were 3.7% lower than the prior year. The lower sales number is clearly not good news for the economy or for AutoCanada. But it should be noted that February 2018 was “a tough comparable” month. February 2018 had been 2.0% higher than February 2017 and was a record high for February. Despite a weak finish, 2018 was still a strong year for auto sales in Canada. 2016 and 2017 had both been banner years with big increases compared to 2012 through 2015 which was a period when auto sales did not grow much at all. February 2019, despite the 3.7% drop was the third highest February ever. Therefore, there are still a lot of auto sales happening in Canada. If auto dealerships have historically been good profitable businesses most of the time (and they certainly appear to be) then well-managed auto dealerships should continue to be profitable in 2019. And, starting in March the comparable year sales are a little less tough as 2018 sales were about flat compared to 2017 in March and then started to run increasingly below.

One piece of good news for AutoCanada was that Chrysler sales with a 2.0% decrease in February were down less than the industry average. This comes after a long string of big monthly declines for Chrysler. Chrysler (including Fiat) is actually the top selling brand in Canada. AutoCanada has a heavy exposure to Chrysler dealerships.

It’s interesting to see that “light trucks” which include SUVs absolutely dominate the market with a 75% market share in the first two months of 2019 up from 72% in 2018. This might suggest that people are still not choosing the cheapest economy vehicles.

March 2, 2019

Friday was a strong day in the markets and for our stock picks. The S&P 500 was up 0.7% and Toronto was up 0.4%.

Linamar was up 3.0% as after Martinrea (also an auto parts company) reported strong results. Linamar will report on March 11. According to Yahoo Finance, Linamar is trading at just 5.6 times expected earnings. Basically, it seems that investors are not willing to pay a high multiple for the stock due to fears of earnings decline. The fears relate to trade wars, stagnant or falling world auto sales and the impacts of electrification of vehicles. Linimar does have a history of being a very cyclic stock. But it has also grown through the years and appears to be very well managed.

Couche-Tard was up 2.8%.

TFI International was up 2.2% and Canadian Tire was up 1.8%.

Stantec was down 1.0% in further reaction to its earnings release. Stantec has definitely had some operational stumbles the past few years. It has plans in place for strong earnings growth in 2019. But investors may wait to see actual progress before they are willing to bid the price up. According to Yahoo Finance the stock is trading at (a relatively attractive) 13.6 times expected earnings.

February 28, 2019

On Thursday, the S&P 500 was down 0.3% and Toronto was down 0.5%.

BHP Billiton was down 3.0% in New York. It’s a volatile stock that moves with commodity prices including iron ore. It also of course moves with company-specific developments.

Toll Brothers fell 2.0% in further reaction to its earnings. U.S GDP came in higher-than-expected at 2.6%. Note that GDP growth is always expressed in real terms. The growth is higher when inflation is included. The U.S economy has been strong. In my recent trip to Tampa Florida I was told that there is still a lot of new homes being built. Prices have not been that strong due to the ample supply. In the suburb of Tampa that I visit (Riverview), the roads basically can’t handle the traffic despite the fact that more lanes have been added. But U.S home building numbers overall have remained well below the levels seen before the financial crisis. Buffett said he was surprised by this and pointed out that the percentage of people owning homes is down something like 5% and the number in rental accommodation is up by some 5%. If the U.S economy remains strong and mortgage rates remain low then we could see a recovery in home building. But at the moment the trend is apparently not in that direction. December housing starts were particularly weak with single-family starts down 6.7%.

Stantec closed unchanged in reaction to its earnings release which I mentioned this morning. After the close they announced an increase to their share buy-back program. They have been buying back shares and os management does appear to sincerely believe the shares are under valued.

TFI International fell 1.0% despite what looked like a very good earnings report. I reduced my Stantec position and increased my TFI position.

Canadian Western Bank will report earnings on Thursday next week. They have their own mix of business that is different from the big banks (no capital markets business) and I believe different from National Bank and Laurentian (CWB is focused on commercial lending). So, it seems likely that they will show some increase. I am not at all sure how their mortgage business will fare. It would be safer to assume that they too have been hurt by the stress test and the slow-down in housing sales. Unless they ran into more bad loans on the commercial side, I would expect to see at least modest profit growth. It would be wishful thinking, but I wonder if they could make an offer to buy Laurentian Bank given that CWB wants to expand nationally and that Laurentian seems like it could use better management.

February 28, 2019 10:25 am eastern

Stantec’s earnings came in apparently somewhat above expectations. But not great. There is a 5.5% dividend increase. Our latest rating was (lower) Buy and from a quick look at the earnings report I don’t think the rating will increase. I plan to trim my position today to have cash and/or move into higher rated stocks and also increase diversification. Stantec currently represents about 4% of my portfolio.

February 27, 2019

Wednesday’s session saw the S&P 500 and Toronto each about unchanged.

Toll Brothers ended the day down 2.5%. It’s interesting that after its earnings release yesterday, the stock rose in after-hours trading and the one headline I saw said that the earnings beat expectations. Today, the headline I saw said orders came in low. After hours trading, when a company issues news, seems to be “hot money” that has to make a decision without a chance to digest the news. The direction is often different after some overnight reflection. Also, most earnings reports have both positive and negative aspects. It can seemingly depend on the mood of the market as to which it focuses on. Toll Brothers is selling at not much over book value. But its orders for new homes are running lower than last year. It’s a profitable company and will likely trend hither over the years. But right now, there may be little reason to expect it to move quickly in either direction.

After the close today, TFI International released earnings. Basically, they appear to be blow-out results with Q4 adjusted earnings per share up 63%. Some of that increase was expected but not all of it. Presumably, the stock will trade higher tomorrow. TFI is exceptionally well managed and they seem to be able to continually wring higher profits out of their operations. I regret that I don’t own more shares. For whatever, reason there is a trading halt on TFI. That seems quite unnecessary given that the news came out after the close of markets. The trading halt will likely be lifted before the open tomorrow. Possibly someone at TFI requested the halt out an abundance of caution or a misunderstanding of the rules. To my knowledge, Canada has no “after-hours” trading system. Nor should it.

Statistics Canada reported the January Consumer Price Index today. Overall, prices are up 1.4% versus one year ago. But excluding a drop in energy prices the increase was 2.1%. Food prices were up 2.8% and shelter costs up 2.4% and those are two areas where people always notice increases.

February 26, 2019

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

Couche-Tard was up another 2.7%.

Stantec was up 1.9%. It will report Q4 earnings on Thursday. The hope is that with the sale of it construction Services division it can get back to reporting growth it its core business.

Toll Brothers reported Q1 fiscal 2019 earnings after the close. There were positive and negative aspects to the report. Pre-tax earnings were up 15% but that is based on homes delivered that were contracted for about a year ago. New contracts this quarter were down 31% in dollars and 24% in number of units. But the company indicated that contract sales started to turnaround somewhat in February. The shares were up 3% after hours. So far, it appears that the earnings report was better than expected. But tomorrow will see a more complete reaction to the results.

February 24, 2019

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

AutoCanada was up 4.4% to $13.46. This stock has been increasing despite a lack of positive news regarding Canadian auto sales. January sales were weak. While I hope that the new management can turn things around, I don’t have much faith that the Q4 report will contain good news. Auto sales weakened in 2018 and especially for Chrysler which AutoCanada has a heavy exposure to.

Shopify was up another 2.6%.

Constellation Software was down 3.0% giving back a portion of recent gains.

After the close, TFI International announced an acquisition. This appears to be a modest sized acquisition.

I did add to my Canadian Tire position today.

berkshire hathaway updated february 24, 2019

Berkshire Hathaway is updated and rated Buy at $203.71.

The headline news from Berkshire’s Q4 report is hat Berkshire / Buffett lost $25 billion in the quarter and that this included a write-down and other problems as Kraft Heinz. The loss was caused mostly by the stock market plunge in Q4 and a new rules that requires unrealized gains and losses on investments to be reflected in net earnings. Previously they were reflected in “comprehensive earnings” which allowd thge loss to be reflected in book value but not in earnings.

But Q4 actually included a 71% increase in operating earnings (GAAP earnings excluding the market value losses). Operating earnings for 2018 were also up 71%. A large part of the increase came from lower income tax rates. But pre-tax operating earnings were also up substantially.

Based on the higher operating earnings Berkshire’s shares are rated a Buy. I am tempted to add to my modest position.

February 24, 2019

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

Shopify was up another 2.25% in Toronto.

Andrew Peller was up 4.5%.

The S&P 500 and Toronto are each up over 11% in 2019 gaining back much of the ground lost in late 2018.

If Berkshire Hathaway happens to get hammered down to say $190 or below tomorrow (Monday) due to its earnings report, I will consider buying some. Buffett will appear on Squawk Box on Monday morning.

Stock futures were up on Sunday evening as Trump has extended a deadline that would have increased tariffs on Chinese goods starting March 1.

Canadian Tire report updated FebRUARY 23, 2019

Canadian Tire is updated and rated (lower) Strong Buy at $145.42. This has been a strong company for decades. It will likely continue to do well with steady but relatively modest growth. Its price to earnings ratio is seldom as low as it is right now at 12.4 times trailing adjusted earnings per shares. It has sometimes been quite a bit cheaper than its current 2.1 times book value, but that measure is not as relevant as the earnings multiple. Also the price to book value has been pushed down by share repurchases.

One of the adjustments to earnings is to add back a $50 million dollar “expense” related to an obligation to repurchase Scotia Bank’s 20% share of its credit card operation if Scotia Bank wants it to. The reason that obligation has grown is because the credit card operation has grown and become more profitable. It takes an accounting regulator to count the fact that its finance operation is more valuable as an expense. Sure it would cost Canadian Tire more to buy back that 20% share in the unlikely event that Scotia Bank wanted it to. But that ‘s because it is simply a more valuable asset. The other big items we added back (which management also did) were costs related to the Helly Hansen acquisition that had to be expenses and costs associated with the rollout of their new triangle rewards program. Those are expenses that are not only one-time in nature but which are arguably more in the nature of capital investments versus expenses.

I plan to take the opportunity of this lower price (and lower P/E ratio) to build a larger position in Canadian Tire. I’d certainly be comfortable with this as 5% of my portfolio.

February 21, 2019

On Thursday, the S&P 500 was down 0.35% and Toronto was down 0.2%.

TFI International was up 2.1% to $40.45. This is a very well-managed company.

Toll Brothers was up 1.5% to $37.30.

AutoCanada was up 1.4% to $12.54. I reduced my position in this stock by about 20% today. This was to reduce my risk.

Most stocks were down modestly on the day.

Kraft Heinz (not on our list) released poor results, cut its dividend, revealed an investigation into their accounting, took a large write-off and said that the packaged food industry has become tougher. This is a 3G company, the same people that control Restaurant Brands. They are notorious for ruthless cost cutting. There will not be a lot of sympathy for their troubles. Buffett (Berkshire has been a major investor / partner with 3G for years) defended 3G’s approach last year while noting that Berkshire itself does not take such a ruthless approach. It will be interesting to see if his reaction changes especially if accounting irregularities are found.

February 20, 2019

On Wednesday, the S&P 500 was up 0.2% and Toronto was up 0.6%.

AutoCanada was up 2.8%. It has recovered a bit of ground lately although it has not released any further news.

Constellation Software was up 2.3%.

Canadian Tire was up 1.9%. I will update the report on Canadian Tire in the next few days based on its Q4 earnings released.

BHP Billiton is up about 17% since January 23. And that was on top of a special dividend of about 5% received on January 30. It released a good earnings report on Monday. I sold half of my small position in BHP today.

February 18, 2019

On Monday markets were closed for President’s day and Family Day holidays.

Over the weekend Trump tweeted (among other things):

“The Mueller investigation is totally conflicted, illegal and rigged! Should never have been allowed to begin, except for the Collusion and many crimes committed by the Democrats. Witch Hunt! “

That would seem to be yet another indication that Trump thinks that the Mueller report will be very damaging to him. His approach is to discredit the report.

The reaction from his supporters could certainly be violent. So this is a risk for investors.

In my experience the legal system does not take at all kindly to be being disrespected like this. For example convicted criminals who fail to admit guilt have an extremely hard time being granted parole. How will even Trump’s appointees to the Supreme court react to such utter contempt for the rule of law?

February 17, 2019

On Friday, the S&P 500 was up 1.1% and Toronto was up 0.9%.

Linamar was up 3.9% to $50.28. AutoCanada bounced up 3.6%.

Constellation Software was down 3.3% giving back part of Thursday’s big increase.

As of Sunday evening futures were suggesting U.S. stocks would be little changed on Monday morning. But Asian stocks were up on trade optimism. (Probably already reflected Friday in the U.S.)

This recovery in the markets offers a chance to rebalance for those that found themselves in December too heavily invested for comfort in too few stocks or in stocks versus fixed income. There is nothing like a sharp market decline to cause some rethinking on risk tolerance and / or risk capacity.

February 15, 2019 8:30 am eastern time

On Thursday the S&P 500 was down 0.3% while Toronto was up 0.4%.

Canadian Tire was down 4.75% after releasing earnings. The only headline on Yahoo Finance last night said that they beat earnings expectations. If that is the case then it was likely something about the outlook that spooked investors. I intend to update the report in the next week. Investors have worried about Amazon’s impact for years but Canadain Tire has continued to do very well despite Amazon. They also managed to overcome a big headwind from the lower Canadian dollar.

Constellation Software which has a stellar record jumped 14% after releasing earnings.

Visiting Cozumel, Mexico yesterday it was more prosperous than probably much of Mexico ansd including Costa Maya which we saw on Monday. This port gets apparently six to eight cruise ships a day in high season. While there is a protected cruise ship tourist area on shore, the locals also benefit greatly because most of the shopping is done downtown and outside of the protected cruise-ship areas (where the locals don’t benefit as much). Circle K has a presence in Mexico (I believe through a partnership). I looked for Circle-K as we had a tax tour of part of the city but did not see any. Mexico should be developing and growing faster than Canada and the U.S. and therefore should offer investment opportunities. The easiest way to get involved with that would be through an ETF. The ishares one is EWW. But despite the fact that Mexico should be developing, this ETF has not done well at all. There may be too much corruption or a lack of good incentives for the private sector. Looking at this I am not very tempted to invest in Mexico at this time.

It was interesting that we never had to show passports when going ashore in Mexico, Belize or Honduras. The cruise line has passenger passport information and the immigration authorities apparently use that to clear all passengers to come ashore. I recall that even entering a U.S. Caribbean island from a ship some years ago we had to show passports. Understandably, Mexico, Belize and Honduras are less worried about people sneaking in their country than is the U.S. I don’t recall if Canada requires cruise ship passengers to go through some kind of customs process. When passengers do not have to show passports to go ashore, it makes it a lot easier to spend money ashore to the benefit of the local economy.

February 14, 2019 at the opening of trade

Boston Pizza Royalties Q4 earnings were not great but definitely better than I expected / feared. The key points are:

  • Same store sales growth of negative 0.2% for the Period and positive 0.1% for the Year.

  • On a Franchise Sales basis, SSSG was positive 0.1% for the Period and negative 0.3% for the Year compared with negative 0.2% and negative 0.4%, respectively, for the same periods in 2017.
  • Distributable Cash3 per Unit increased 0.3% for the Period and decreased 3.1% for the Year.
  • Payout Ratio4 of 103.8% for the Period and 103.3% for the Year. Cash balance at the end of the Year was $2.7 million.
  • The following are my words, I could not get rid of the bullet point s here for some reason
  • The number one key figure is franchise sales growth per store (sales excluding liquor on which no franchise fee is collected). This was up 0.1% in Q4. Not great but a return to growth following a period of modest declines. Not bad considering the funk in Alberta in Q4. I expected distributable cash per unit to be down due to higher income tax but it was positive probably due to some items that fluctuate quarter to quarter.

Although the payout ratio is above 100%, there was absolutely no indication of a distrubution cut. Instead it sounds like management expects sales per unit to slowly rise and bring tht ratio down

We shall see how the market responds today.

February 13, 2019

Reporting today from off Roatan, an island that is part of Honduras. Spent the day there. The local population is mostly of Spanish heritage but many or most speak English. The local income levels are mostly quite low. But they are an entrepreneurial people. Many try to make a living from cruise ship and fly-in tourists. Taxi drivers and souvenir sellers abound. An influx of vacation property owners has driven up property prices. Roatan is known for its diving opportunities as its coral reefs are close to shore.

Markets were with the S&P 500 up 0.3% and Toronto down 0.1%.

AutoCanada was up 3.4%

I believe Boston Pizza Royalties Income fund reports tomorrow. I am expecting same store sales to be about flat or down a little. Any gain would be quite positive. Distributable cash per unit will likely be down due to a higher income tax rate in British Columbia. They will “lap” that impact as of Q1 which will be good. They need to show an increase in distributable cash per unit very soon otherwise I would expect a possible small cut to the distribution. They have close to 30% of their locations in Alberta and that is not helping matters. I understand Ontario has been quite strong for them.

Teranet released the January home price index. They note some declines. But to my mind the declines have been quite modest so far. After seven months of decline Calgary is down only 2.4%. Granted home prices in Calgary have not moved much in ten years (after soaring for 10). But why should the value of an existing home that just gets older every year increase?

February 12, 2019

Belize City

Markets were positive on Tuesday with the S&P 500 up a hefty 1.3% and Toronto up 0.5%.

A report today indicated that American’s confidence in their financial future is the highest in 16 years.

That sounds positive for Toll Brothers which was up 4.2% today.

Canadian Western Bank was up 3.3%. FedEx gained another 2.4% gaining back some of the loss from recent months.

AutoCanada was up 3.8% to $11.40. Of the companies I own, this one worries me because of its own past mistakes and the industry headwinds. It is going to take strong efforts by the new management to turn things around.

In Belize today we had a short tour of the City. It’s certainly not prosperous but people are trying. The cruise ship industry helps a lot. But the ships don’t encourage people to walk about past the secure tourist shops on the pier area. That seems unfair since the locals were friendly. We ventured forth and found the local nearby vendors to be aggressive is selling their souvenirs, beer and food and such. But they are only trying to make a living and so we supported the locals and did not bother with the sanitized approved tourist shops on the pier. In a local grocery store I found the prices expensive, higher than Canada. The local currency is worth 50 cents on the U.S. dollar so you take the posted price and divide by two and that is the price in U.S. dollars. From what I saw the locals must face high prices for groceries. And that’s despite the depressed economic conditions. Hopefully tourism will continue to help them improve the economy. Belize is a former British colony and so the official language in English. Most of the residents are descendants of African slaves. They are trying to overcome their oppressed past and hopefully will continue to succeed at it slowly but surely.

Scotia Bank has a presence in Belize. Fortis Inc. owns some electric generation assets in Belize.

In my own trading I bought a small amount of Andrew Peller and Canadian Tire today. This increases my diversification. (Also provides and excuse to buy more wine.)

February 11, 2019

Posting today from Rhapsody of the Seas just out of Costa Maya entoute to Belize. I expect to be able to post each day but a weak internet would be the problem if I go AWOL.

On Monday, The S&P 500 was up 0.1% and Toronto was down 0.4%.

Canadian Tire was down 3.2%. I did not see any news from Canadian Tire. I’d be tempted to buy on this or larger dips.

Andrew Peller was down 3.6% to $13.49. I am thinking of buying some.

FedEx was up 2.2%.

February 9, 2019

On Friday the S&P 500 ended the day up 0.1% but Toronto was down 0.45%.

FedEx was down 2.3%, and Linimar got pushed down 7.6%. These both may have been related to some negative news or views on trade talks, especially China / U.S. There was no news from Linamar to particularly explain a drop.

Statistics Canada reported on jobs and unemployment for January. They reported 67,000 jobs gained with Ontario gaining 41,000 and most provinces gaining but Alberta losing 16,000. The unemployment rate rose 0.2% to 5.8% nationally as more people looked for work. As always, I take the monthly numbers with a grain or two os salt because statistically the error level is about plus or minus 30,000 and that is if it is a perfect random sample. Year over year is probably more reliable and on that basis there were 327,000 jobs created. Even with population growth that is good growth for the year.

February 8, 2019 (9:20 am eastern)

Posting from Tampa Florida today…

On Thursday markets were down moderately with the S&P 500 down 0.9% and Toronto down 0.1%.

CRH Medical was up 4.9% in Toronto.

Costco was down 0.9% despite reporting yet another very strong month of same-store sales growth in January. Growth was particularly strong in the U.S. at 7.3% and 4.3% in Canada. These are the numbers adjusted for foreign exchange and gasoline sales. Growth before adjustments were lower but it is the adjusted numbers that are usually focused on. Still, some reports called the growth disappointment.

February 6, 2019

Wednesday was a relatively quiet day overall in the markets with the S&P 500 down 0.2% and Toronto up 0.1%.

Not much of particular note, but Linamar was up 1.8% and has now recovered to $52.16. The stock is cheap but faces a lot of negative sentiment (and realities) about auto sales as well as trade tensions. It is a very well managed company and should continue to do well long term.

Toll Brothers dipped down 2.65%.

AutoCananda announced sometime during the trading day that they will sue their own founder and long-time CEO, Patrick Preistner, who is no longer associated with the company. He now owns car dealerships privately through his company Canada One Auto Group.

I was not at all happy to hear this news. It strikes me as a strange move, perhaps even a desperate move. When Preistner left AutoCanada I said at time that that was a strange move. I don’t think I knew then that he owned dealerships privately. I don’t think the extent of that was clearly revealed in AutoCanada’s reports. Perhaps Priestner did favor his own private investments over those of AutoCanada. But I am skeptical that much good can come of spending money on legal fees and spending management time on this. AutoCanada’s biggest mistake was the disastrous purchase of the eight Chicago area dealerships in the Spring of 2018 when Priestner was long gone. They almost immediately wrote off an even one third of the purchase price. And three directors very soon left. I don’t know if they left because they did not support the acquisition or were forced out due to their part in it. Of course the official version is they left for basically personal reasons.

I was surprised the stock did not sink today on this strange news, instead it was about unchanged on the day. But analysts have not yet had time to give their reactions.

I have been thinking that the new chairman (and effectively CEO) Paul Antony (who only joined the Board last Spring) is a real kick-a$$ guy who has already made a lot of changes. Most notably ousting the CEO who bought those Chicago dealerships. He also changed out most or all of the other top managers. Despite the lower stock price I now consider AutoCanada to be quite speculative. It faces industry headwinds as well as dealing with its own past mistakes. So far they do seem to continue to be somewhat in an expansion mode which is a hopeful sign. They always planned a lot of capital spending. I don’t know if they can now delay some of the dealership renovations to conserve cash or not. Sadly, things may get worse at AutoCanada before they hopefully start to get better. The upcoming Q4 report could certainly contain more negative news.

February 5, 2019

Tuesday was another positive day in the markets with the S&P 500 up 0.5% and Toronto up 0.6%.

WSP Global was up 2.2%. Stantec was up 2.4%. Starbucks as up 2.6%. Couch-Tard was up another 2.0% to an all-time high.

Tomorrow there may be some reaction to the State of the Union Speech.

I notice CN rail is out with a debt offering 3.0% for ten years and 3.6% for 20 years. It certainly seems like a small return. But at least it is guaranteed to mature at par (barring financial disaster at CN which is extremely unlikely). I don’t think many retail investors bother much with individual bonds like this. If a retail investor does want bonds, new offerings like this would be the way to go as there is no trading commission. (CN is effectively paying the commission). Normally when you buy bonds there is a large commission that is hidden from view. I notice TD Direct does not seem to be involved in selling this bond to retail investors (maybe it will show up tomorrow morning). I do see though that TD has quite a long list of corporate bonds at this time. If you look at the bid yield versus the offer yield you can get a sense of the large hidden commission. Be cautious with that. If you are buying a corporate bond, ask how much less you would get if you turned around and sold it immediately. My recollection is that in the past TD had only a small selection of bonds. (I could be wrong on that though…) None of the yields look very high. TD mostly sticks with safer bonds but does have a few riskier high-yield bonds as well. A few of those look interesting but would be risky.

Checking some insider trading I notice that Canadian Western Bank reported today on their January share buy backs. Recall that they has bought back some shares in December (I believe this was their first time ever doing that ). In December they paid around $25 to $26. In January the price was higher and they paid up to $29.61, although mostly a bit lower than that. The last buy was January 22 and I believe that completed their allowed and planned budget for this which was not a huge buyback. But I do think it was a very positive indicator that they truly believed their shares were quite under-valued.

Melcor Developments continues to buy back 1262 shares per day. It’s tiny but is all they are allowed due to the thin trading liquidity.

February 4, 2019

Markets were positive on Monday as the S&P 500 gained 0.7% and Toronto was up 0.6%.

CRH Medical was up 4.0% and Ceapro bounced up 6%.

AutoCanada slipped 2.8% which was not surprising given the January auto sales report that I mentioned in my last comment.

We will soon be into the main part of the 2018 Q4 earnings reporting season for Canadian companies.

It was tragic to hear about the CP rail derailment that has killed three . It’s a reminder that most companies on the stock exchange are out there doing real and valuable and and sometimes dangerous work. The economy relies on these companies and many of them like CP and CN are very efficient at what they do. While this accident is tragic, it is worth pondering the fact that it is newsworthy because it is so rare. We live in an age where industrial accidents are so rare that they are big news. That’s a very good thing. We know it was not always that way.

February 1, 2019

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

Most rate reset preferred shares were up modestly as the government of Canada five year bond yield rose 7.5% to 1.862%.

Visa was up 3.6%.

Amazon was down 5.3%, giving back just some of its recent gains.

Desrosiers Automotive was out today with their free monthly sales report on Canadian auto sales. It is amazing that they get the data so fast that they can report January sales on February 1. Basically, it was another ugly month for passenger car (down 14%) and light truck (down 5%) sales. Last January was the highest January ever and so this January overall was still about equal to January 2016 and 2% below January 2017. It’s not good news in regards to AutoCanada. Their biggest brand at 37% of revenue is Chrysler which was down 20%. In terms of year over year declines, Chrysler has been one of the worst selling brands in Canada for about the past nine months. GMC representing 10% of their revenues was down 10%. Hyundai representing 11% of AutoCanada’s revenues did have solid gains of 22%. Unless AutoCanada was able to increase revenues in service and cut costs it is going to be very tough for them to report good news for Q4 or apparently Q1. The stock is already pricing in a lot of bad news. They have already written off considerably goodwill and they write off more with the Q4 report. The company made its latest dealership acquisition in December and they still seem confident that they have the finances to continue to expand.

Rail car loading levels (a good indicator of economic activity) had been showing strong gains in Januaruy but in the latest week fell back to about the 2018 level in both Canada and the U.S.. In Canada autos and parts were noticeably below the 2018 level. Petroleum had another week of very strong year-over-year gains.

January 31, 2019

On Thursday, the S&P 500 was up 0.9% and Toronto was up 0.4%.

AutoCanada bounced up 5.7%. I stopped in at their Volkswagon dealership in an Edmonton suburb today. This dealership is only about two or three years old and is still ramping up towards profitability. The manager there expressed optimism about AutoCanada under its new management.

Toll Brothers was up 3.6% to $36.94. While, I think the stock deserves to be higher it is doing well lately given that the U.S. housing market is softening. I was somewhat tempted to trim my large position in this stock today but did not do so. Toll Brothers has been ramping up the development of rental apartment buildings which it does with joint venture partners. They announced financing of a a project in Atlanta yesterday. The stock was beaten down a lot in 2018 and has only partly recovered. But the company itself remains focused on long-term growth.

Shopify, which I have not put a rating on other than to say it is speculative (due to its high valuation ) was up another 3.5%.

Amazon was up 2.9% but then fell 4.9% in after hours trading after it reported earnings which were good but which apparently included lower than hoped for “guidance” for Q1.

Boston Pizza was down 3.6% to $16.77. Trading volume was over twice the daily average and so perhaps some large holder sold a lot of shares. Hopefully, it will report positive same-store sales growth in Q4. For each of the last four quarters same-store sales were down modestly (average about 0.4%). But distributable cash per unit was down several percentage points with the difference mostly due to a higher income tax rate in B.C. It still faces that issue in Q4 but then “laps” that impact. Distributable cash flow per unit needs to start increasing again or they will have to cut the distribution somewhat. If that happens it would likely only be a 5% or so cut but the market would likely react quite negatively. I had lunch at a BP today in Sherwood park Alberta. They had a decent crowd for lunch but not exactly packed.

Statistics Canada reported GDP for November which was apparently weak with just a 0.1% increase versus October. However GDP growth is usually looked at on a year over year basis and on that basis it was actually up 1.7%. To my mind it is inexcusable for Statistics Canada to put out a press release where it is not even immediately clear if they are talking versus the previous month or versus the same month in the prior year. It is very easy for the press to get this mixed up when statistics Canada writes in an ambiguous manner. Also, 0.1% growth in a month would be 1.2% annualized (although a month is too short a period to annualize). Reports like this can usually be interpreted positively or negatively depending on the bias of the interpreter. And keep in mind that GDP growth is basically always reported on a real basis. That is, the actual growth was higher but they deduct inflation.

January 30, 2019

Wednesday was a positive day in the markets with the S&P 500 rising 1.55% but Toronto as up only 0.1%

The U.S. FED seemed to give something of an “all clear” signal indicating that it sees less need to continue raising interest rates.

WSP Global was up 4.8% after releasing highlights of its three year strategic plan by which is plans to become the premier professional consultancy in its industry in the next three years. As our report indicates this company has been extremely aggressive in growing through acquisitions.

BHP (the BBL ADR) was up 3.1% in New York. Inc. was up a hefty 4.8% (REALLY hefty when you consider its total market value of $817 billion.)

If indeed we are at or near the end of the cycle of higher interest rates, and with the 5 year Canada bond yield at 1.82%, and the 3 month T-bill rate at 1.63% it seems to me that the market yield on various stocks and preferred shares could start to come down. That would push their prices up. Looking at TD direct they offer 1.6% on a TD deposit account and 3.0% on a 5 year GIC. In comparison to that, the ability to get say 6.0% for five years on Canadian Western Bank’s new rate reset issue CWB.PR.D might be attractive to some investors. You are not guaranteed at all that it will be worth $25 in five years but with a spread of 4.0%% over the five year bond upon reset it is basically guaranteed to be paying at least 4.05% (that’s if the 5 year Canada goes to zero) and it seems very unlikely it would reset at less than 5% and it could be a lot more. Of course we don’t know what inflation will be. But if someone wanted fixed income this might have a place in a portfolio. One thing investors have learned about rate reset preferred shares however; they are not a substitute for cash or investments that are guaranteed to mature at a certain price.

January 29, 2019

On Tuesday, the S&P 500 was down 0.15% while Toronto was up 0.55%

The Canadian Western Bank preferred share that I said (see January 21) was over-priced in relation to a new CWB issue was down 2.6% to $20.11. CWB’s new 6% issue started trading today as CWB.PR.D. It closed today at $24.83 to yield 6.04%. I thought it might trade above $25 given there was a heavy demand for these shares when they were issued last week. So far, rate reset preferreds seem to demand higher and higher yields in order to entice buyers.

Amazon was down 2.7%

Boston Pizza Royalties Income Fund is back up to $17.40 to yield 7.9%. If it is going to be able to increase same store sales then it should probably be trading higher. But given that it may report yet another quarter of same store sales declines it remains vulnerable to sliding back down again. It in effect competes with other yields in the market including rate reset shares and those yields have risen which, all else equal, pushes down the market price for competing investments including BP.

Apple Inc. released earnings after the close and rose 5.7% after hours. We shall see if it maintains or builds on that gain after analysts have a bit of time to digest the report.

CN Rail came out with (not that surprisingly) a big earnings gain Q4 of last year and raised its dividend by 18%. Still, the stock was about unchanged in U.S. after hours trading.

January 28, 2019

On Monday, the S&P 500 was down 0.8% while Toronto managed a 0.1% gain.

There seems to be a lot happening in the news. The U.S. has now charged Huawei and its CFO Meng Wanzhou, who is facing an extradition hearing in Vancouver. I don’t particularly understand much about this but it certainly is not a good development in regards to trade with China for either Canada or the U.S.

The U.S. is apparently considering sending 5000 troops to Columbia in vase they are needed in regards to Venezuela.

Reports are that the Mueller report is near completion.

So, lot’s of things for the market to worry about.

Linamar was down 2.6%. Penny stock, Ceapro was down 9% but that may just be fairly normal volatility for that stock.

The price of Stantec and WSP did not react to the problems that SNC has revealed.

Fortis Inc. announced that it has an agreement to sell its ts 51% interest in the Waneta Expansion Hydroelectric Project in British Columbia for approximately $1 billion. The market showed little or no reaction to the news. It’s beyond me why they would not have stated what gain (or less likely, loss) they expect to book on the sale. Also if it was an acquisition they would be telling us it was accretive and probably by how many cents per share. But no word here on how dilutive this is to earnings per share. They do indicate that the funds will be used in their capital investments which would indicate that the lost earnings will be restored. In any case Fortis is a very well-managed company and presumably this transaction is beneficial. Fortis prefers regulated assets or at least those with really long contracted cashflows. This transaction may directionally reduce their risk assuming that the entire output of the dam was not contracted for decades to financially strong buyers.

Vale has suffered a tragic and deadly dam failure in Brazil on Friday last week. I wondered if BHP Billiton might go down on the news given that they had a huge dam failure in Brazil in 2015 on a dam that they owned in partnership with Vale. I believe Vale was the operator. BHP has been wanting to resume operations but this latest development probably at least delays that. BHP’s stock does not seem to be affected by this latest failure so far. There has been no press release from BHP about it to address any possible impact on BHP. Mining always seems to be a tough way to make money. These dam failures have not only caused deaths but have been an environmental disaster.

SNC Lavalin news (and any relevance to Stantec, WSP) January 28, 2019 10:20 am eastern

I have never had SNC Lavalin on the list but its bad news this morning is possibly of relevance to Stantec and WSP. SNC will report lower 2018 earnings for a number of reasons. The stock is down 20% on the news. On a mining&metallurgy division project there are performance problems with whatever they were involved in plus cost overruns and they are unable to recognize certain costs as revenue as the client might not pay. Unrelated to that, they are facing problems in Saudi Arabia where 15% of their workforce is located and with that and slowness in oil and gas and also apparently some disputes about amounts that clients will pay (they mention revenue recognition issues) they are taking a write-down of $1.24 billion or $7.06 per share.

The thought comes to mind whether any of this has relevance to Stantec and WSP. Largely the answer is no given that one problem was specific to to one mining&metallurgy division project and the other problem relates mostly to Saudi Arabia. But it was not entirely clear that the slow down mentioned was restricted only to the oil and gas division in the middle east and to other very specific projects.

Overall, there is little indication of any relevance to Stantec and WSP. Nevertheless, it seems like a negative indicator for those two companies that have at least some business in the middle east.

In my own trading, I lightened up somewhat on Stantec this morning, selling what amounted to just over 25% of my shares. It was one of my larger positions and I wanted to reduce the risk. Also, I only have Stantec rated (lower) Buy and I can buy into something I rate higher which will also increase my diversification. I do not own any WSP shares.

January 25, 2019

Friday was a positive day in the markets with the S&P 500 up 0.85% and Toronto up 0.6%.

Our one penny stock, Ceapro was up 7.5%.

Linamar was up 4.8% to $51.17 after it announced approval for a share buy-back. They are authorized to buy back up to 10% of the public float or 4.5 million of the total 66 million shares. The company explained:

“We are initiating this NCIB in recognition of what we believe is a significant level of under valuation of Linamar stock. We do not feel that the value of our business is being adequately reflected in our current share price” said Linamar CEO Linda Hasenfratz .

I believe this is an important announcement. Linamar is a growth company and would prefer to be doing an acquisition rather than giving up cash like this. Looking at the share count it appears they last bought back shares during the financial crisis when their shares got really hammered down (like from a peak around $26 to briefly under $4!). My impression is that this is a very well-managed company. I certainly believe that management honestly believes that the shares are significantly undervalued. And while there are risks to their sales outlook and while “the market” may remain skeptical, I think they are right. This buyback should provide support for the share price and hopefully earnings reports during 2019 will further support an increased price.

BHP Billiton was up 4.3% (The BBL shares on New York)

Starbucks was up 3.6% after releasing an earnings report.

AutoCanada started the day down slightly but ended the day up 3.0% which may be a positive reaction to the CRM partnership that it announced and which I mentioned yesterday.

January 24, 2019

On Thursday, the S&P 500 finished the day up 0.1% while Toronto was up 0.5%.

Toll Brothers was up 1.7% and Linamar was up 2.8%.

Starbucks was down 2.5% but is up about 2.0% in after hours trading after it released a favorable earnings report.

AutoCanada has just announced a strategic partnership with a Customer Relationship Management company that it already does business with. It sounds like they take care of emailing customers reminding them to come in for service. Apparently a new group dedicated to AutoCanda will have 85 employees (some presumably are already employees of the CRM firm). This company is located in Saint John New Brunswick and has over 500 dealers that it markets for across North America. AutoCanada has been a very disappointing investment. But the new management under Paul Antony continues to be busy making changes that they say will improve profitability. I don’t expect those results to shown in earnings until Q1 is reported, at the earliest. Hopefully the stock price could respond earlier. This remains a speculative investment given its own past mistakes and the weaker state of the auto sales market at this time.

Statistics Canada reports that the number of recipients of Employment Insurance was down 13% in November year over year. There was a big decline in Alberta but no doubt that is partly due to benefits simply running out. Still, the report suggests an improved jobs market overall.

Apple Inc. added our list January 24, 2019

Apple Inc. is added to our list and rated Speculative Buy at $153.92. Apple is well known as one of the most valuable companies in the world. It also has a low P/E ratio at 12.9 – those two factors together tell you that it is highly profitable. It earned $60 billion dollars in its latest fiscal year. I am calling is Speculative at this time (which may be an exaggeration) because it has warned on its Q1 results to be released next week and it may sell fewer iPhones in 2019 due to tensions with China and perhaps longer replacement cycles as the technology has become more mature. In my own account, I have made a small share purchase and will wait for the Q1 results before possibly adding to that.

January 23, 2019

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

About the only notable move in stocks on our list was Constellation Software, up 3.0%

Rail car loading reports are out for the third week of January. In Canada, every category except grain and non-metallic minerals is up and many categories are up substantially. This includes intermodal, which is consumer goods which is up noticeably. Even autos and auto parts are up year-over-year. These figures suggest the Canadian economy continues to grow. If you click through to the chart be sure to click the “radio” button to choose Canada and then use the buttons to see each commodity. The red line at the left is 2019 and 2018 is the green line. These figures may include CN and CP’s U.S. operations but in any case on the face of it the data looks quite positive on a year over year basis. It is more difficult on this chart to compare January to December especially given seasonality and I have not attempted to make that comparison.

Statistics Canada reported retail sales for November. Year over year they are mostly quite flat (up 0.5% for Canada as a whole, Ontario up 2.9% and Alberta up 0.5%) which would indicate a modest decline in most provinces considering inflation. Nova Scotia shows a 6.4% decline. That’s rather hard to believe. Scary, if true. These statistics are always subject to data collection errors.

January 22, 2019

On Tuesday some fear returned to the market and the S&P 500 was down 1.4% and Toronto was down 0.8%.

BHP was down 3.2% in New York (the BBL shares).

CN Rail was down 3.2%. Amazon was down 3.8%. CRH Medical was down 3.5% in Toronto.

Our one penny stock , Ceapro. was up 5.7%. It’s a highly speculative stock but could pay off as it has some products at various stages of trials or planned trials. I was under the impression that they were running a 12 week trial but upon checking I see it is an 18 to 24 month trial.

“The 18-24-month study will enroll approximately 280 subjects who cannot tolerate high doses of current treatments. Patients enrolled will be randomized to receive either placebo, low, medium or high doses of beta glucan (500 mg tablet) as add-on therapy to atorvastatin 10 mg – 20 mg or an equivalent statin for a 12-week treatment period. The primary efficacy endpoint of the study will be the change over 12 weeks in LDL-cholesterol. ”

So, perhaps there will be no major results for a long time yet.

Regarding the Canadian Western Bank 6.0% preferred share. I had placed an order (technically an “expression of interest”) for 1000 shares yesterday morning. I was allocated 400 shares. That suggests the offering was substantially over-subscribed. This would also suggest that the 6.0% return was somewhat above market. If market conditions remain unchanged I would therefore expect these shares to begin trading a little over $25.

Statistics Canada reported manufacturing sales for November. The result was a modest decline. But it appears that the decline was caused by lower petroleum refining. I believe that may have been partly due to shut downs at the customer end. Still, it was not a positive report overall.

Statistics Canad also reported sales at food service and drinking places for November. The results showed a small increase versus October and a strong 5.1% increase versus the prior year including 2.9% for Alberta. This should bode well for Boston Pizza except that BP has been showing modest declines (around 0.4%) in same store sales for the past four quarters despite the fact that the industry overall has seen relatively good gains most or all months in that time period.

Statistics Canada (they were busy today) also reported Wholesale trade figures for November. The report showed little growth year over year.

All three of the above reports included handy tables that summarized the percentage change versus October as well as month over month ans showed this by province. For some reason, there are other reports (including the residential investment report I mentioned yesterday) that don’t give those handy tables. In those cases it can be very tedious to try to extract the data and calculate the year over year change. I usually focus on year over year changes.

January 21, 2019

U.S. markets were closed for the Martin Luther King jr. holiday on Monday. Toronto rose 0.3%.

CN Rail was up 2.3% amid reports that it and CP are rationing capacity due to congestion – which is to some degree a nice problem to have for the two rail lines.

Andrew Peller was up 3.7%.

Canadian Western Bank was up 2.6%.

Constellation Software was down 2.4%. AutoCanada was down 4.2%.

Canadian Western Bank issued a new 6.0% rate reset preferred share which sold out quickly. (I placed an order for some). This issue was at spread of 4.05% over today’s five year government of Canada bond yield. That is a hefty spread when you consider that some rate reset preferred shares have been issued in the past at a total yield under 4%. This issue will reset in five years at a spread of 4.04%.

This issue follows BMO and TD which recently issued at 5.2%. CWB has to pay more as it is considered riskier. I don’t know why CWB would make this issue. As of the end of October CWB had $265 million in preferred shares outstanding which was the same as October 2017. This issue will add $125 million to the preferred share total which is substantial. CWB has common equity of $2,321 million. I understood that CWB thought its capital level was already somewhat high. CWB is currently buying back about $50 million in shares so to some extent this could represent replacing common equity with preferred equity. But the capital level is being increased by about 75 million or 2.9% which is substantial and perplexing. This could be to facilitate asset growth of some kind or it could be that they predict losses ahead and wanted to shore up the balance sheet – but I doubt that is the case. It is possible but I think unlikely that they plan to redeem the rate reset issue that is due to reset at the end of April.

Those existing rate reset preferred shares closed down 2.2% at $21.55. If the five year Canada yield remains at 1.95% these will reset at 4.71% of $25 for a yield of 5.5% at the $21.55 price. I would see the new 6.0% shares as more attractive than the existing ones likely to reset around 5.5%. The existing shares have the advantage that they could reset somewhat higher than 5.5% (or lower) and if the market spread on these shares decreases they probably offer a higher chance of a capital gain. New issues at $25 can’t really ever be expected to trade much above $25 given the right of CWB to recall them at $25 on the reset date. The existing shares also benefit from a slim possibility that CWB will in fact redeem them at $25 but that seems unlikely. Why issue new shares at 6.0% and then redeem old shares at 4.71%? The existing shares also benefit from the fact that they are still accessible around $21.55. The new, probably more attractive, issue at 6.0% is closed. It will be interesting to see if it starts trading somewhat above $25.

Statistics Canada reported investment in new construction in November.

The investment in single family homes in Alberta is a very important to Melcor. This (new construction plus renovations) was down 20% year over year which does not look too bad. But it is down an even 50% from the November 2016 figure and down 31% from the 2015. figure. Clearly this is a volatile sector and clearly home building / home renovation are down quite substantially in Alberta versus two years ago. Somewhat of a saving grace is that the land and building lots that Melcor does not sell this year it still owns and can sell in future. But it does face carrying costs to hold land for longer periods. Selling home lots is not Melcor’s only business. About half its assets are devoted to its portfolio of commercial income properties. It also develops new buildings profitably. The decline here versus 2016 is I believe larger than the decline in single family starts and may indicate that renovation spending in Alberta is down even more that new home construction.

For Canada overall, residential single family investment in November 2018 was down 7% year over year.

American Express is updated January 20, 2019

American Express is updated and rated (higher) Buy at $100.48.

With this update I added four new lines to the report (all reports will get these new rows as they are updated).

The new rows are just below the rating cell as follows:

Generic Rating (This rating does not consider the circumstances of any individual investor and is therefore not specific advice for any individual):  (higher) Buy at $100.48
Has Wonderful Economics? Yes, 34% ROE
Has Excellent and Trustworthy Management? Yes
Likely to grow earnings per share at an attractive rate over the next decade? Yes
Valuation? Attractive with 13.6 P/E

Previously, in the summary cell of each report I have addressed whether it was a good business, and well managed and what the outlook for growth was and what the valuation looked like as well as other factors. And the rest of the report gave lots of further details and gave my thinking. But it is easy to get bogged down in details and also some people likely just look at the rating. But the rating cannot really stand as a summary of the entire report. These four new rows address the key questions that Buffett has said we need to ask. And they help to explain the rating. At times a stock is rated very highly due to its cheap valuation but it may not be a fundamentally great business. At other times a great business is rated fairly low due to an excessively high P/E ratio. These four new rows can help to explain the rating. Ideally subscribers would still look at the full report and try to see the full logic of the rating.

January 18, 2019

On Friday, the S&P 500 was up 1.3% and Toronto was up 0.6%.

Berkshire Hathaway was up 2.9%, TFI International, FedEx and Constellation Software were each up 2.1%

Among the relatively few stocks on our list that were down was Linamar, down 1.5%.

An insider at Canadian Western Bank bought 3,250 shares at $29 today which is another vote of confidence.

Toll Brothers announced that it will team up with J.P. Morgan Asset Management to construct a 421 unit rental building in Westchester New York’s Platinum mile. This is a $78 million investment for Toll Brother’s half of the cost. For context, Toll Brother has assets of $10,245 million. Westchester is within an easy transit commute form New York City. Toll Brothers also sells single family homes in Westchester including this town house project with prices around $1.0 to $1.2 million.

Regarding getting Alberta’s oil to market. CN and a First Nation have announced that they will invest $16.7 million each along with a yet-to-named third partner to build a plant to turn bitumen into plastic coated pucks that can be shipped (presumably to the coast) via open hopper rail cars at far less cost than shipping in tanker cars. The plant would take two years to complete. The First Nation must be confident of the technology since this is a big investment for them. The capacity would be 10,000 barrels per day which compares to existing rail shipments of 330,000 barrels per day. For CN this is not a large investment. It is interesting to consider that the mandated production cuts in Alberta which have increased the price of Alberta heavy oil and bitumen actually harms the economics of this project. The economics will depend on the “spread” between Alberta heavy oil and bitumen and world oil prices when the plant is operating. Those spreads are very hard to predict. Each project that works to get more oil out reduces the spread. For the Alberta economy overall, this is good news. It’s small and not immediate but another step in the right direction.

If rail shipments are any indication, Canada’s economy continues to grow in January. Rail car shipments are up sharply in the first two weeks of January versus the prior year. Intermodal, which is consumer goods, was up and petroleum was up sharply. Auto and auto parts were down moderately while all other categories appeared to be up or at least similar to last year. You can see the figures here. Click the “radio” button to Canada and then explore the different commodities.

January 17, 2019

Thursday’s action saw the S&P 500 rise 0.8% ans Toronto was up 0.7%

Dollarama was up 2.5%. Most stocks were up but Toll Brothers was down 1.6% and Linamar was down 1.2%.

Regarding rate reset preferred shares, Toronto Dominion was out with an issue at 5.2%. I did not notice the email from TD Direct about this new issue until about 5 hours after it came out and the issue was sold out by then. The five year Canada bond yield is at 1.93% and so this is a hefty 3.27% spread. It will reset every five years at the five year plus 3.27%. So even if the five year once again were to plunge to its record low around 0.50% (and such very low rates were the case in much of 2015 and 2016 and were the reason that rate resets plunged back then) this one would still reset at 3.77% which would be low but not horrible. And if the five year goes to say 3.0% which it is sort of “supposed to” under Bank of Canada outlook then this would reset at 6.27% which while not fantastic would certainly earn a place in a portfolio, especially a taxable account where the dividend tax credit would apply. All the comments I made on Monday regarding the very similar Bank of Montreal issue also at 5.2% apply to this TD one.

Regarding AutoCanada. I happened to be driving by one of their dealerships at 9:00 am this morning and stopped in. This is their Mercedes-Benz dealership that they acquired just this past Fall. I don’t like to waste the time of car salesmen with corporate type questions – though I will be in the market for a car soon but I figured at 9:00 am on a Thursday they should have time to chat and I told reception that I was there primarily as an investor (share owner). The Sales Manager was phoned and told I was interested in how sales were going and he said he was in a meeting and all that information was on the corporate website and also did not invite me to wait until his meeting was over or come back later. I felt rather disrespected to get that brush-off. Another salesman paid me no attention (I thought car sales guys used to be hungry!). But I asked if any salesman was available and one young but experienced guy was and he was very knowledgeable and helpful and generous with his time. I did not get any real detail about sales but it was indicated that sales were down but not terrible. And I know from the Desrosiers report that Mercedes Benz and most import brands while down a bit in 2018 have not seen the declines that Chrysler saw. Mercedes was flat in December while the industry was down 8 percent.

In any case this dealership is relatively new and it is massive and impressive. There were about four people working just at the auto service counter and two people on the reception counter. So the place looked pretty prosperous. Hopefully the prosperity will flow through to the share owners again at some point.

January 16, 2019

On Wednesday, the S&P 500 was up 0.2% as U.S. banks rose after some of them reported higher-than-expected earnings. Toronto was up 0.4%.

Shopify was up 2.1%. With a great future but no current earnings, the value of this company is somewhat “untethered” and so floats around, probably based on “technical” trading and momentum. The founders of Shopify have done extremely well and I believe they have been very astute in selling shares and raising a huge war chest of cash while still retaining control of the company.

There were no other particularly noteworthy moves in the stocks on our list. Bank of America which is o longer on our list was up 7.2%. I have a few shares bought some years ago and sold today about half of those for more than twice what I paid for them.

Having found myself with far too little cash to take much advantage of the low stock prices in December, I now plan to try to raise my cash position. To that end I sold at a gain some of the bargain shares I did pick up in December. This made for a small reduction in my position in Boston Pizza. Earlier I had slightly reduced my position in Linamar. I also put in an order to slightly reduce my large position in Canadian Western Bank.

One stock that could very well decline before it ever (hopefully) turns around is AutoCanada. As mentioned in an earlier post, December auto sales in Canada were rather ugly. And yesterday I saw a comment by an apparent industry insider that said the first half of January is down again. It’s entirely possible that AutoCanada will do further write-offs of goodwill. But I think they will remain cash flow positive. Most of their debt is “floorplan” debt to finance their inventory. Other than that their debt is not tiny but seems reasonable. I was originally attracted to AutoCanada as a growth-by-acquisition company which can be a very good strategy (successful examples include TFI International, Stantec, Alimentation Couche-Tard, WSP Global, Constellation Software, Fortis Inc, and Berkshire Hathaway) Unfortunately it turns out AutoCanada was over-paying for acquisitions. Then they had a period with poor management (Steven Landry, who was brought in from outside AutoCanada) which led to an apparently extraordinarily dumb purchase of Chicago area dealerships leading to an almost immediate large write off and a change of directors and CEO. I think the new Chair (and defacto CEO) is very competent but he is trying to deal with a mess and running into a slowing auto sales market.

January 15, 2019

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

Shopify was up 3.55%. Amazon was also up 3.55%

Most stocks have risen considerably off their December lows. This includes Toll Brothers up 1.1% today to $36.11, Canadian Western Bank up 1.2% to $29.32, Linamar up 1.2% to $49.06. But these remain well below their highs. Alimentation Couche-Tard is basically at its all-time high at $71.79.

AutoCanada was down 2.6% and Melcor was down 2.1%.

In the United Kingdom of Great Britain and Northern Ireland, Theresa May’s Brexit deal was very soundly defeated. And it looks like her government could be defeated tomorrow. Markets apparently welcome the news since it will lead to some next steps in towards leaving or possibly staying in the European Union.

There have been a number of take-over / merger announcements lately which indicate that “animal spirits” remain strong as corporate managers are still willing to pay up for acquisitions.

Regarding Gold companies I have written extremely critically of Barrick Gold in the past. I have not looked at it again but I will go on the record to say that I think that its recent takeover by the management of Randgold is a very positive thing for Barrick shareholders. The new CEO sounds far more competent to me.

January 14, 2019

On Monday, the S&P 500 was down 0.5% which was blamed on news a decline in China’s imports and exports in December. The market did not seem to pay much attention to the latest news about Trump. (Allegedly took steps to keep secret his discussions with Putin and continued coverage of the news that the FBI had opened an investigation on Trump as soon as he fired the FBI director – and openly said that he did it because of the Russian investigation).

Toronto was up 0.2%.

CN Rail was a notable gainer, up 2.2% as its traffic was up 9% year-over-year in the first week of 2019. This is also potentially a positive indicator of economic activity. However, in this case the increase appears to be almost entirely related to increased oil by rail.

Regarding rate reset preferred shares, there was an interesting development today. CIBC came out with an issue yielding 5.2% which is 3.3% higher than the 5 year Canada bond yield. When you consider that in retirement, 4% is often considered the maximum safe withdrawal rate, this 5.2% cash yield could certainly be attractive to those looking to generate cash yield for withdrawals. By the time I saw it, it had already sold out and it was likely available for only an hour or two.

This issue has implications for existing rate reset shares. These CIBC shares will reset in five years at the 5 year Canada bond yield plus 3.31%. This 3.31% “spread” is far larger than most or all of the existing bank rate reset preferred shares and is larger than the spread on many of the non-bank issuers as well, such as utilities. The implication is that if these new 5.2% CIBC 3.31% spread rate reset shares are worth about their issue price of $25 today, then all those issues with lower spreads are definitely worth somewhat less (at least today) and perhaps considerably less than $25. For example the Canadian Western Bank issue on out list that will reset at a spread of 2.76% on April 30 would yield only 4.66% at $25. As a smaller bank those probably need to yield at least 5.4% to compete with the likes of this CIBC issue and that suggests a price of $21.57. And those shares closed today at $22.64 which suggests an April 30 yield of 5.15%. That suggests to me that the CWB shares may be a little over-priced but the explanation could be that the CIBC shares were scarce and snapped up quickly and the Canada bond could move higher by April 30, and if so, the CWB shares will yield more than 5.15% at their current price.

The fact that the market “spread” on bank rate reset preferred shares has risen to 3.31% explains why most rate reset shares are trading well under $25. They could come back to $25 if the market spread declines significantly enough. That spread tends to decline as the Canada bond yield increases.

On another note, some may wonder how a bank makes money lending mortgages at rates as low as 3% or whatever while paying a much higher rate on its own preferred shares. The answer is “leverage”. Preferred shares, along with common shares, and bonds issued by banks are part of a bank’s owner’s capital. And they are allowed to leverage that capital considerably. Basically when they lend mortgage money at 3.0% that is funded largely by deposits on which they are paying less than 3.0% and in some cases 0%. This was explained in our article on how banks make money.

Shopify Comment January 13, 2019

I have added Shopify to the list of stocks but only on a preliminary basis and have not yet assigned it a Buy / Sell rating other than to say that it is Speculative. Shopify appears to have a wonderful business model and a great future. But it it is not yet profitable on a GAAP basis which makes it very difficult to value. Despite not being rated, the report provides a description of Shopify and provides information and y thoughts on the company. I will likely assign a buy / sell rating in a subsequent update. A possible added value for Shopify is that it might be an attractive take over target for the likes of Amazon or IBM.

Much of Shopify’s potential future value may already be reflected in the share p[rice. Clearly the really big money has already been made by the insiders that started the company. And those that bought soon after the IPO in 2015 have also done very well. With a U.S. $16 billion market cap it could still have upside but probably not massive upside at all.

The analysis is in U.S. dollars because the company reports in U.S. dollars and gets most of its revenue from the U.S.

January 12, 2019

Friday was a relatively quiet day for the markets with the S&P 500 unchanged and Toronto up 0.2%.

And there were no noteworthy movements in any of the stocks on our list.

A possible headwind for the markets is the political situation. Friday there was a new revelation that the FBI had opened an investigation in 2017 into whether Trump’s actions were a benefit to Russia. Apparently this investigation was later folded into the Mueller inquiry and the outcome is unknown. Trump’s former long-time lawyer is going to testifying publicly in front of Congress. And at some point the Mueller report will be released. All of this will lead to more turmoil for the President and could certainly send the markets lower.

Then there is the partial government shutdown. That is creating turmoil. So far it has had zero impact on the reports for initial claims of jobless benefits or the unemployment rate. But could it directly and indirectly lead to a surge in jobless claims and the unemployment rate? I would think so. And the partial government shutdown will likely lead to various delays that could lower corporate revenues and earnings. I saw a report where sales of existing homes were delayed because federal flood insurance could not be accessed. I don’t know if this will affect Toll Brothers’ ability to close and deliver homes. Any number of companies could be affected in unexpected ways. On top of that there is the potential for more turmoil if Trump declares a national emergency to get his Wall funding.

It would seem wise for investors to have some cash available in the event that the market offers up bargains due to the turmoil.

January 10, 2018

Markets were up moderately on Thursday with the S&P 500 up 0.45% and Toronto up 0.7%

TFI International continued to recover and was up 2.2%.

Linamar was up 1.7% and that was despite news that Ford and Landrover Jaguar would be laying off thousands in Europe. I don’t know what impact this would have on Linamar but certainly it is not good news. But Linamar’s stock is cheap and perhaps the market decided it was already more than pricing in the weaker auto market in Europe.

We are now in a period where most companies (those with December 31 year ends) are in “quiet periods” where they won’t likely release any news until their Q4 results come out. Still, there have been a few merger type announcements even in this period. The market at the moment has been watching the FED closely for signs of how fast it raise interest rates. Also, as always news from the White House can push markets in either direction at any time.

Statistics Canada released building permit data for November. As expected, permits were down in Alberta compared to the prior year. Residential permits were down 17% and non-residential down 18%. Alberta construction and particularly around Edmonton had been holding up quite well over the past few years despite the lower oil prices. A number of large office and residential towers had likely been committed to before oil prices fall. And single family starts held up well also. But now, activity is clearly slower.

Statistics Canada also released the index of new home prices for November. This data shows new home prices have remained fairly stable with declines in Alberta at roughly 1%., versus the previous November. So far, it does not appear that home builders are offering big discounts on new homes. Correspondingly, I have not seen any indication that Melcor has reduced its lot prices – although it has focused on selling smaller less expensive lots in the past year or more.

January 9, 2019

Today, the S&P 500 rose 0.4% and Toronto rose 1.4%

West Texas Oil is at $52.16 and I believe I saw Western Canadian Select at over $43 on BNN today. The Canadian dollar is back up to 75.7 cents from lows of 73.3 U.S. cents just one week ago.

Two weeks ago, all was gloom and now a lot of things have rebounded sharply. Whether this lasts is anyone’s guess. Trump is getting nowhere with his Wall money demands and may declare a national emergency. Never a dull moment. And, clearly any given stock and the market overall can turn down quickly if any bad news appears.

Stocks on the rise today included:
Linamar, up 5.1% probably due to possible progress in China / U.S. trade talks.

Toll Brothers, up 3.65% to $36.31. A good recovery from $31 on Christmas Eve. While it is still cheap, I was tempted to trim a bit more today but did not. U.S. home building numbers have been low. On the other hand 30 year mortgages rates in the U.S. have retreated somewhat from the highs seen in October. And the pace of U.S. home building remains well below historic averages.

Boston Pizza, up 2.5% to $16.66. It got as low as just under $14 on Christmas Eve as I suppose some people must have been selling in a panic thinking there was no bottom to it.

Almost all the stocks on our list were up today and there were no declines of any real note.

Costco has reported same-store sales for December. The numbers to look at are the ones adjusted for gasoline prices and currency. Adjusted for lower gasoline prices, U.S. same store sales were up 7.1%. And in Canada, adjusted for gasoline and for currency (as their unadjusted number is in U.S. dollars) same-store sales were up 8.1%. It seems many people are still spending apace. These gains come on top of or in comparison to similar big gains in the prior December. Costco’s same store sales accelerated well over a year ago and just keep charging ahead. I suspect some of this must be inflation increases but in any case the results are very impressive. Unfortunately, the stock always seems quite expensive and it will likely be up tomorrow. Perhaps the next time the market gets a fright will be the time to at least nibble on this.

January 8, 2019

On Tuesday, the S&P 500 was up 1.0% and Toronto was up 0.7%.

Notable gainers included:
TFI International, up 4.4%
Dollarama, up 5.1%
WSP Global, up 3.0%
Andrew Peller, up 2.9%

Canadian Western Select oil continued to climb and was over $40 U.S. This is a spot price and most production is probably sold at contracted prices. But this is certainly a welcome development for Alberta.

President Trump is speaking to the nation tonight about border security. That may affect markets in one direction or the other tomorrow. Meanwhile, there is apparently proof that his campaign chair met with a Russian operative during the campaign. Markets seemed to ignore that news today.

Melcor, in insider trading data posted today, reports that a few insiders had purchased a very modest amount of shares on December 31 “under a plan’. Checking back the plan was in place for several years and so I would not consider these buys to offer much in the way of a positive signal. They simply take some compensation money at year end and buy some shares.

Canadian Western Bank in insider trading information posted today reports that an insider had bought 500 shares December 24 and 500 shares at $25.00 December 27 at $25.09. This is another positive indication that management views their shares as under-valued.

January 7, 2019

Markets rose on Monday with the S&P 500 up 0.7% and Toronto up 0.5%.

Rate reset preferred shares rose with the Canadian Western Bank pref share on our list up 4.2% and the Enbridge one up 3.7%.

Couche-Tard was up 2.5% and sits basically at an all-time high.

Constellation Software was up 4.5%.

AutoCanada however was down 4.6%.

West Texas Oil has risen to $48.73. More importantly for Alberta, Western Canadian Select was at $39 today. Presumably the mandated productions cuts are having an impact. This is much-needed good news for Alberta.

January 6, 2019

The next update will be to add wine maker Andrew Peller back to the list. Its price is down to about $14 from highs of $19. With the recent market declines it was briefly under $12 in December. At $14 it is probably reasonably priced but not cheap and may end with a rating of (lower) Buy. Still, it might be nice to buy some especially for those that enjoy its products.

Looking ahead to the Q4, Canadian companies that earn much of their earnings outside of Canada will benefit from the lower Canadian dollar. This includes Stantec, WSP Global, TFI International, Fortis, Royal Bank, Linamar and to a lesser extent CN Rail.

Couche-Tard will not see a benefit in its reported earnings since it reports in U.S. dollars, but the value of those U.S. dollars is higher in Canada dollars. The same applies to CRH Medical.

Companies that import into Canada will be hurt by the lower Canadian dollar and that includes Canadian Tire and Dollarama.

January 4, 2019

Markets  were higher on Friday due to a strong U.S. jobs report combined with soothing comments from the Fed Chair.

The S&P 500 was up a huge 3.4% and Toronto was up 1.5%

Some of the larger gainers were:
Amazon, up 5.0%
American Express up 4.5%
Visa, up 4.3%
BHP Billiton, up 6.3%
Canadian Western Bank, up 3.7%
FedEx, up 4.6%
Toll Brothers up 5.1%

I sold what amounted to 8% of my Toll Brothers shares. I hate to sell any but with all the volatility and with many predictions of a housing slump in the U.S. it seemed prudent to sell a little into this rally.

The Canadian jobs report for December was relatively weak especially for Alberta. And the numbers may well be correct. December was certainly a gloomy month in Alberta. But I can’t believe how the jobs report keeps getting reported with zero mention of the (large) statistical error level. This report became even more volatile a couple of years ago and so I don’t think much can be made of any one month’s report.

Checking insider trading reports for today, I see that Melcor continues to buy back some 1162 shares per day. It’s tiny but it is all they are allowed due to the thin trading volume.

But I also see that Canadian Western Bank reported today on its December share buybacks. They started on December 6, the same day they released their Q4 numbers and have been buying back 60,111 shares per day. That’s about $1.5 million dollars worth per day. To put that in context, CWB has a market cap of about $2,325 million. If CWB keeps going at this rate they will finish buying the authorized 2% of shares or 1,767,000 shares before the end of January. If the price averages $26, they will have spent $46 million which is almost exactly half of what they currently “spend” on dividends in a year. It certainly looks like they definitely view the shares as undervalued and wanted to grab as many shares as they could at the recent lower prices. This also indicates that are confident that earnings will continue to be quite good. They would not blithely give up 2% of their equity capital if they thought there was much trouble on the horizon.

This buyback will be modestly accretive to earnings per share. Banks are always highly leveraged and need to be to make a good return on equity. CWB has had a higher equity ratio than regulators require and somewhat higher than what management felt was needed. This buyback will increase the bank’s leverage slightly. Since the shares are trading right around book value, the buy backs will essentially not be dilutive to book value per share, which would normally be the case.

I watched President Trump speak and take questions today for over an hour. Again he looked very relaxed and confident. He seemed to take questions in stride without getting angry. Sure, he was his usual boastful self and stretched the facts at times. And attacked the judiciary!  But he also gave convincing reasons for building his Wall / Fence and was very clear that he is not backing down.  The Democrats and CNN can say what they want but he campaigned and won the Presidency on a promise to built the wall. Sure he said Mexico would pay and now he says well they will pay through the better trade agreements. The Democrats will likely have to scramble now to get him the money without looking like they are backing down.

January 3, 2019 (plus January 1 and 2)

On Thursday, the S&P 500 fell 2.5% while Toronto fell 0.9%. Apple reported lower sales in China and there was also other weak economic news from China including lower automobiles sales.

Berkshire Hathaway which has a large investment in Apple shares fell 5.5%. FedEx was down 3.7%, Visa was down 3.6%. Starbucks was down 4.3%. TFI International was down 4.1% to $33.80 – seeing that, I bought some TFI today.

Melcor Developments was up 4.5%. But that could amount to “noise” for this thinly traded and beaten down stock. Checking insider trading, Melcor has not reported any buy-backs this week. Hopefully, the program has no ended.

Desrosiers Automotive consultants released a report of auto sales for December. The numbers look rather ugly with sales down 8% year-over-year. And sales for 2018 were down 2.6%. However this was in comparison to 2017 which was the strongest year on record. Desrosiers points out that 2018 still comes in as the second highest year ever and said that December’s figures were still a solid total. (They may just look bad compared to the very strong December 2017). But in any case this is not positive news regarding AutoCanada. If there is any good news from AutoCanada regarding Q4 it will likely have to come from better management and cost cutting.

I received from Knightsbridge Foreign Exchange a summary of where the big banks expect the Canadian dollar to go in Q1. RBC projects no change from the current 74 cent level and a rise to about 75 cents in Q2. BMO and TD both project a rise to about 79 cents for both Q1 and Q2. The other banks are somewhere in the middle. Possibly now is the time repatriate some U.S. dollars back to Canadian.

Statistics Canada has created a new dashboard of new housing market conditions. There is a “radio button” to switch from comparing to the previous month and comparing to the same month the prior year. Year over year things (prices, October permits) are mostly up slightly except that housing starts were down 12% in November. Housing starts include multi-family which can cause substantial volatility.

Meanwhile, the consumer economy seems to continuing to hum. I was at Costco today, Thursday at 1 pm – it was basically packed. This was in St. Albert a suburb of Edmonton. Minor point but Tim Hortons was also quite busy. So far, I see no slow down in the propensity of people where I live to partake of fast food and restaurants and shopping.

January 2, 2019 P.S.: I have updated an article that describes how to set up a diversified portfolio using ETFs, or even just using one single ETF.  I also updated the reference article that provides a list of selected Canadian ETFs covering equities, higher dividend equities , fixed income and commodities.

January 2, 2019: After starting out the day in the red, by the end of the day, markets started out 2019 on a positive note. The S&P 500 index was up 0.1% and Toronto was up 0.2%.

Boston Pizza was up 5.8% after announcing that 10 new restaurants opened in 2018 will join the royalty pool. The net new addition is only 5 restaurants because 5 closed. And it seems likely that the 10 new ones will have a higher average revenue than the five that closed so perhaps the net addition is higher than 5. In any case new restaurants may not be accretive in any way to cashflow per unit. They are designed to add just 0.085% to franchise revenue for each 1.0% that new restaurants add to the royalty pool. After accounting for any cannabilization, new restaurants may not be accretive. But the addition of new restaurants does indicate that they are still attractive to franchisees (despite higher minimum wages and some decline in guest traffic). And the BP Royalties need profitable franchisees for the system to be sustainable. More restaurants improves the economy of scale for advertising. The BP press releases are very confusing and they could do a better job there. They should be much more clear about the impact on cashflows per unit, which is what really matters.

Canadian Western Bank was up 2.0%.

CRH Medical was up 3.6% after it announced this morning that it had made another small acquisition. It’s growth by acquisition strategy remains in place.

Linamar was down 3.4% as investors seem to continue to be fearful of its prospects.

I saw much of Trump’s television appearance today. While not a fan I have to admit he looked very relaxed and confident. And his comments on his Middle East strategy sounded sensible to me. He took credit for having the Saudies turn on the pumps and bring oil prices down. There was a time in Canada (1970’s) when Saudi Arabia / OPEC was considered a very bad actor for restricting supply and pushing oil prices up. It is never admitted, but the oil industry in Alberta (and therefore the province) has benefited greatly by OPEC’s actions over the past 40 years or more. That’s fine, but it’s not so honest when the Alberta government and the industry pretend they were operating in a free oil market all these years. When they count their blessings, they ought to count OPEC twice. Even today, I am sure that absent OPEC, supply would be higher and oil prices lower.

January 1, 2019:

The Enbridge rate reset preferred share on our list is updated and rated (higher) Buy at $17.00 At this price it is yielding 6.5% and is projected to reset on December 1 this year to yield 6.7% on a $17.00 price. These rate reset shares have been disappointing with their declines in value. But their cash distributions have been safe (although variable at the reset dates). It’s hard to imagine a realistic scenario where receiving 6.5% or so for a long time (on what would be just a portion of a portfolio) would be a terrible return. But investors have learned with these shares that the market values are anything but fixed. And they will not necessarily ever return to their original $25 price. At $17.00 the risk / return equation seems favorable.

Canadian Western Bank Preferred Share report is updated January 1, 2019. As the report indicates, this rate reset preferred share currently yields 5.0% and is set to rest on April 30 which would be to 5.3% if the five year government of Canada bond yield stays at its current level of 1.9%. 5.3% is not a bad yield but it may not be competitive given that market yields have recently risen. These rate reset shares have turned out to be far more volatile than expected. These particular shares had traded well under $25 since mid 2015. At times such as under $20 they were attractive for potential capital gains. These CWB shares finally got back to and above $25 in October before slumping along with basically all rate reset shares. We had rated them (lower) Sell on September 8. If I held these I would wait and see what happens at the reset date on April 30.